EX-99.1 5 ex99-1.htm

 

Exhibit 99.1

 

VINCO VENTURES, INC.

 

[●], 2022

 

Dear Vinco Ventures, Inc. Stockholder:

 

As Vinco Ventures, Inc., or BBIG, (F/K/A Edison Nation, Inc.), previously announced, it plans to spin-off (the “Separation”) certain of its businesses. BBIG plans to include its packaging, Bitcoin mining services, and Web3 (decentralized internet) products businesses (the “Spin-Off Businesses”) as part of the spin-off. In anticipation of the Separation, BBIG has placed its assets and legal entities comprising the Spin-Off Businesses into or under a newly formed wholly owned subsidiary of BBIG formed to facilitate the Separation, Cryptyde Inc. (“TYDE”). As a result of the Separation, TYDE will become an independent, publicly traded company comprised of the Spin-Off Businesses. The Separation is expected to be completed upon the distribution of the common stock of TYDE to stockholders of BBIG, described below, on or around [●], 2022.

 

The Separation is subject to conditions described in the enclosed information statement. Subject to the satisfaction or waiver of these conditions, the Separation will be completed by way of a pro rata distribution (the “Distribution”), of all the outstanding shares of TYDE common stock to the stockholders of record of BBIG as of the close of business on or around [●], 2022, the anticipated record date for the Distribution (the “Record Date”). Each BBIG stockholder of record on the Record Date will receive one (1) share of TYDE common stock, for every ten (10) shares of BBIG common stock held by such stockholder as of the close of business on the Record Date. The issuance of shares of TYDE common stock under the Distribution will be made in book-entry form, which means that no physical share certificates will be delivered. At any time following the consummation of the Distribution, stockholders may request that their shares of TYDE common stock be transferred to a brokerage or other account. No fractional shares of TYDE common stock will be delivered. The distribution agent for the Distribution will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing prices, and distribute the net cash proceeds from the sales pro rata to each stockholder that would otherwise have been entitled to receive a fractional share in connection with the Distribution.

 

BBIG expects to receive an opinion from counsel to the effect that, among other things, the transfer of the assets and legal entities, subject to any related liabilities, associated with the Spin-Off Businesses, and the Distribution should qualify as a transaction that is tax-free for U.S. federal income tax purposes, except to the extent any cash is received in lieu of fractional shares. You should consult your own tax advisor as to the particular tax consequences of the Distribution, including potential tax consequences under state, local, and non-U.S. tax laws.

 

The Distribution does not require BBIG stockholder approval, and you do not need to take any action to receive your shares of TYDE common stock in connection with the Distribution. Following the consummation of the Distribution, you will own common stock in both BBIG and TYDE. BBIG common stock will continue to trade on the Nasdaq Capital Market under the ticker symbol “BBIG,” and TYDE has applied to have its shares of common stock listed on the Nasdaq Capital Market under the ticker symbol “TYDE.”

 

The enclosed information statement, which we are mailing to all BBIG stockholders as of the close of business on the Record Date, describes the Separation in detail and contains important business and financial information about TYDE. We urge you to read this information statement carefully.

 

We want to thank you for your support of BBIG, and we look forward to your continued support in the future.

 

  Sincerely,
   
  Lisa King
  Chief Executive Officer
  Vinco Ventures, Inc.

 

 
 

 

CRYPTYDE, INC.

 

[●], 2022

 

Dear Future Cryptyde, Inc. Stockholder:

 

On behalf of Cryptyde, Inc., it is my great privilege to welcome you as a future stockholder of our company. Following our separation from Vinco Ventures, Inc., we will operate as an independent, publicly traded and growth-oriented company. We plan to have three initial business lines, Web3 (decentralized internet) products, Bitcoin mining services, and consumer packaging. Through our Web3 products business line, we will seek to acquire and build brands that use decentralized blockchain technologies in a variety of consumer facing industries, such as music, movies, digital art, ticketing and event services, and gaming. Our Bitcoin mining services will aim to make Bitcoin mining accessible to consumers previously priced out of the area. Additionally, we will continue to grow the 50 plus year history of our consumer packaging business.

 

We intend to expand through both organic growth and strategic acquisitions. We hope to acquire and create Web3 products that are met with customer satisfaction and build customer loyalty. We plan to continue developing our Bitcoin mining services by growing or seeking to grow a customer base of both existing Bitcoin miners and those who have not yet entered the space. We also intend to grow and evolve our consumer packaging business to meet the demands of today’s e-commerce businesses, as well as customers in other industries.

 

Vinco Ventures, Inc. is expected to continue its operations other than the three business lines that will be part of Cryptyde. We expect Vinco Ventures, Inc. to continue its programs designed to help inventors share and develop their products. Historically, Vinco Ventures, Inc. has conducted programs for inventors under its Edison Nation brand. Recently, Vinco Ventures, Inc. has integrated its inventor focused programs into its Lomotif App and developed Everyday Edisons, which is expected to put inventors in front of industry experts.

 

We invite you to learn more about our company by reading the enclosed information statement, which details our strategy and plans for near and long-term growth to generate value for our stockholders. We are excited about our future as an independent company, and we look forward to your support as a Cryptyde, Inc. stockholder as we begin this new and exciting chapter.

 

  Sincerely,
   
  Brian P. McFadden
  President and Chief Executive Officer
  Cryptyde, Inc.

 

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Information contained herein is subject to completion or amendment. A registration statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

 

Preliminary and Subject to Completion, dated January 25, 2022

 

INFORMATION STATEMENT

Cryptyde, Inc.

Common Stock, par value $0.001 per share

 

This information statement is being furnished to you as a holder of common stock of Vinco Ventures, Inc., (“BBIG”), in connection with the separation of its developing Web3 products and services business, Bitcoin mining services business, and packaging business from its current business operations, and the creation of an independent, publicly traded company, Cryptyde, Inc. (“We”, “TYDE”, or the “Company”), expected to take over the three businesses.

 

We have applied to have our common stock listed on the Nasdaq Capital Market as of the effective date of the distribution date of our common stock to the stockholders of BBIG. We, expect to directly or indirectly through our subsidiaries, hold the assets and legal entities, subject to any related liabilities. All of the shares of our common stock, currently owned by BBIG, will be distributed to the stockholders of BBIG.

 

Upon the distribution, each holder of BBIG common stock will receive one (1) share of our common stock for every ten (10) shares of BBIG common stock held as of the close of business on [●], 2022, the record date for the distribution. The distribution is expected to be completed on or about [●], 2022, the distribution date. Immediately after BBIG completes the distribution of our common stock, we will be an independent, publicly traded company. We expect that, for U.S. federal income tax purposes, no gain or loss should be recognized by you, and no amount should be included in your income in connection with the distribution of our common stock, except to the extent of any cash you receive in lieu of fractional shares.

 

No vote or other action is required by you to receive shares of our common stock. You will not be required to pay anything for the new shares or to surrender any of your shares of BBIG common stock. We are not asking you for a proxy, and you should not send us a proxy or your share certificates.

 

There currently is no trading market for our common stock. Assuming the Nasdaq Capital Market authorizes our common stock for listing, we anticipate that a limited market, commonly known as a “when-issued” trading market, for our common stock will commence on [●], 2022, and will continue until the distribution of our common stock to BBIG stockholders. We expect the “regular-way” trading of our common stock will begin on the first trading day following the completion of the distribution of our common stock to BBIG stockholders.

 

We are an “emerging growth company” as defined under the federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements. See “Business—Emerging Growth Company.”

 

In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page 15.

 

Neither the Securities and Exchange Commission, nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

 

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

 

The date of this information statement is [●], 2022.

 

Prior to the distribution of our common stock to BBIG stockholders, the Notice of Internet Availability of Information Statement or this Information Statement shall be mailed to the holders of BBIG common stock as of the record date for the distribution.

 

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TABLE OF CONTENTS

 

  Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 6
QUESTIONS AND ANSWERS ABOUT THE SEPARATION 7
INFORMATION STATEMENT SUMMARY 10
SUMMARY OF THE SEPARATION 13
RISK FACTORS 15
THE SEPARATION 34
DIVIDEND POLICY 43
CAPITALIZATION 43
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 44
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 49
BUSINESS 56
MANAGEMENT 62
EXECUTIVE COMPENSATION 70
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS 71
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 72
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION 74
DESCRIPTION OF CAPITAL STOCK 76
WHERE YOU CAN FIND MORE INFORMATION 79
INDEX TO FINANCIAL STATEMENTS F-1

 

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ABOUT THIS INFORMATION STATEMENT

 

This information statement forms part of a registration statement on Form 10 (File No. 001-41033) filed with the Securities and Exchange Commission (“SEC”), with respect to the shares of our common stock to be distributed to BBIG stockholders in connection with the separation of BBIG and TYDE.

 

We and BBIG have supplied all information contained in this information statement relating to our respective companies. We and BBIG have not authorized anyone to provide you with information other than the information that is contained in this information statement. We and BBIG take no responsibility for, and can provide no assurances as to the reliability of, any other information that others may give you. This information statement is dated [●], 2022, and you should not assume that the information contained in this information statement is accurate as of any date other than such date.

 

Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about BBIG assumes the completion of all of the transactions referred to in this information statement in connection with the separation of BBIG and TYDE.

 

Unless otherwise indicated or as the context otherwise requires, all references in this information statement to the following terms will have the meanings set forth below:

 

 

“TYDE,” “we,” “us,” “our,” “our Company,” and “the Company” means Cryptyde, Inc. and, when appropriate in the context, also includes the subsidiaries of this entity;

     
 

“BBIG” means Vinco Ventures, Inc. and, when appropriate in the context, also includes the subsidiaries of this entity;

     
  “Distribution” means the distribution of all of the shares of our common stock, which are owned by BBIG, to stockholders of BBIG;
     
  “Distribution Date” means the date on which the Distribution is completed, which is expected to be on or about [●], 2022;

     
  “Blockchain” means a secure online ledger that provides an irrefutable and tamper proof record of every asset purchase and sale.
     
  “token” or “digital token” means an asset that can be bought or sold on a blockchain.
     
 

“Transfer” means the contribution by BBIG to us of the assets, including the various legal entities, associated with the Spin-Off Businesses, subject to any related liabilities;

     
 

“Separation” means the separation of the Spin-Off Businesses from BBIG to TYDE; and

     
 

“Nasdaq” means the Nasdaq Capital Market;

     
  “Web3” means the decentralized web, which includes blockchains and the tokens on blockchains;
     
 

“Web3 Business” means the Web3 business, currently being developed, including the operations, products, services, and activities of such business, to be included in the Transfer to us from BBIG;

     
  “Packaging Business” means the packaging business, including the operations, products, services, and activities, of the packaging business to be included in the Transfer to us from BBIG;
     
  “Bitcoin Mining Services Business” means the Bitcoin mining service business, structured as a joint venture, including the operations, products, services, and activities of the Bitcoin mining service business to be included in the Transfer to us from BBIG;
     
  “Spin-Off Businesses” means the Web3 Business, Packaging Business, and Bitcoin Mining Services Business;

 

Trademarks and Trade Names

 

We intend to submit applications for the trademark “CRYPTYDE.”

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

The statements contained in this information statement that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained or incorporated herein by reference in this information statement, including statements regarding our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, markets, and plans and objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “targets,” “contemplates,” “projects,” “predicts,” “may,” “might,” “plan,” “will,” “would,” “should,” “could,” “may,” “can,” “potential,” “continue,” “objective,” or the negative of those terms, or similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. Specific forward-looking statements in this information statement, include statements regarding our expectations regarding the methodology, effects, timing, and tax-free nature (except to the extent of any cash received in lieu of fractional shares) of the Transfer and the Distribution; our belief that BBIG will meet the requisite requirements under Nevada law to effect the Distribution; our belief that no other material governmental or regulatory filings or approvals will be necessary to consummate the Distribution, other than registration under the federal securities laws of our common stock and completion of the applicable listing requirements on Nasdaq for such shares; our expectation that our common stock will be listed on the Nasdaq under the ticker symbol “TYDE”; our expectation that after the Separation, BBIG common stock will continue to be traded on the Nasdaq under the ticker symbol “BBIG”; our expectations regarding a “regular-way” market, an “ex-distribution” market, and a “when-issued” market in our shares of common stock between the Record Date and the Distribution Date; our belief that separating the Spin-Off Businesses from BBIG’s other current businesses is in the best interests of BBIG and its stockholders; our expectation to take advantage of certain of the reduced reporting and other requirements of the JOBS Act with respect to the periodic reports we will file with the Securities and Exchange Commission (“SEC”) and proxy statements that we use to solicit proxies from our stockholders; our intention to enter into certain agreements with BBIG in connection with the Separation to effect the Separation and provide a framework for our relationship with BBIG after the Separation, including a Separation and Distribution Agreement, a Shared Services Agreement, and certain commercial agreements, and the proposed terms thereof; our expectations regarding the number of shares of our outstanding common stock, the number of such shares held by our affiliates, and the number of stockholders of record following the Separation; our anticipation regarding the adverse effects of COVID-19 on our business; our belief that maintaining and further enhancing the brand recognition and reputation of our brands is critical to retaining existing customers and attracting new customers and that the importance of our brand recognition and reputation will increase; our anticipation that our advertising, marketing, and promotional efforts will increase in the foreseeable future; our anticipation that we will increasingly rely on other forms of media advertising; our plan to continue to expand our brand recognition and product loyalty through social media and our websites with generation of original content; our anticipation that we will enter into new strategic alliances; our expectation that the various claims and lawsuits, arising in the ordinary course of business, we may become involved in will not have a material adverse effect on our results of operations or financial condition; our plan to introduce a continuing stream of new and differentiated products and services that drive customer satisfaction and loyalty; our plan to expand our addressable market by appealing to new and larger audiences in new product categories outside the non-fungible token, Bitcoin mining, and packaging markets; our plan to cultivate and enhance our direct-to-consumer relationships through our digital platforms; our plan to expand and enhance our supply chain; our intent to pursue acquisitions that financially and strategically complement our business; our belief that we will drive customer satisfaction and loyalty by offering high-quality, innovative products on a timely and cost-effective basis; our intent to pursue and challenge infringements of our intellectual property; our expectation to have certain insurance policies in place as of the date of the Separation; our anticipation that most contract assignments and new agreements related to the Spin-Off Businesses will be obtained prior to the Separation; our belief that none of the contracts or other assets requiring consent to transfer or the contracts requiring a new agreement are individually material to our business; our expectation that the increasing expenses incurred by public companies generally for reporting and corporate governance purposes will increase our legal and financial compliance costs; our anticipation that, to comply with reporting and other requirements of the Exchange Act, we will need to duplicate information technology infrastructure, implement additional financial and management controls, reporting systems, and procedures, hire additional accounting, finance, tax, treasury, and information technology staff; our expected executive officers, directors, and other key employees; our expected corporate governance policies, guidelines, and practices; our anticipated compensation and benefit plans; our anticipation that we will enter into indemnification agreements with each of our directors and executive officers; our belief that several provisions of our Restated Certificate of Incorporation, Restated Bylaws, and the Delaware General Corporation Law (“DGCL”) that may discourage, delay, or prevent a merger or acquisition that stockholders may consider favorable and will protect our stockholders from coercive or otherwise unfair takeover tactics; our intention to have no third-party indebtedness as of the consummation of the Distribution; our current intention to retain all available funds and future earnings, if any, to fund the development and expansion of our business; our anticipation to not pay any cash dividends on our common stock in the foreseeable future; our expectations of costs and expenses associated with becoming an independent, publicly traded company; our expectation to incur expenditures to establish certain standalone functions, information technology systems, and other one-time costs subsequent to the completion of the Separation; our expectation that nonrecurring amounts, related to the Separation that are incurred prior to the completion of the Separation will include costs to separate and/or duplicate information technology systems, third-party legal and accounting fees, and similar costs; our belief we will meet known or reasonably likely future cash requirements through the combination of cash flows from operating activities, available cash balances, and available borrowings through the issuance of third-party debt; and our expectation to use our cash flows to continue to invest in our brands, including research and development of new products, talent and capabilities, and growth strategies, including any potential acquisitions, and to repay any indebtedness we may incur over time. All forward-looking statements included herein are based on information available to us as of the date hereof and speak only as of such date. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The forward-looking statements contained in or incorporated by reference into this information statement reflect our views as of the date of this information statement about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results, performance, or achievements to differ significantly from those expressed or implied in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, performance, or achievements. A number of factors could cause actual results to differ materially from those indicated by forward-looking statements. Such factors include, among others, the effects of the COVID-19 pandemic, including potential disruptions in our ability to source the raw materials necessary for production of our products, disruptions and delays in the manufacture of our products, difficulties encumbered by other components of the distribution channel for our products; lower levels of consumer spending; our ability to introduce new products that are successful in the marketplace; interruptions of our arrangements with third-party contract manufacturers that disrupt our ability to fill our customers’ orders; increases in costs or decreases in availability of finished products, product components, and raw materials; the failure to maintain or strengthen our brand recognition and reputation; the ability to forecast demand for our products accurately; our inability to compete in a highly competitive market; our dependence on large customers; an increase in private label products by our customers; pricing pressures by our customers; our ability to collect our account to receivable the risk of earthquakes, fire, power outages, power losses, and telecommunication failures; our abilities to identify acquisition candidates, to complete acquisitions of potential acquisition candidates, our ability to integrate their businesses with our business, and the success of acquired companies; our ability to protect our intellectual property; the risk of complying with any applicable foreign laws or regulations and the effect of increased protective tariffs; the performance and security of our information systems; the potential for product recalls, product liability, and other claims against us; our dependence on key personnel; economic, social, political, legislative, and regulatory factors; the state of the U.S. economy; risks associated with our facilities, including the expected benefits; and other factors detailed from time to time in our reports that will be filed with the Securities and Exchange Commission.

 

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QUESTIONS AND ANSWERS ABOUT THE SEPARATION

 

Please see “The Separation” for a more detailed description of the matters summarized below.

 

Why am I receiving this document?

 

You are receiving this document because you are a BBIG stockholder as of the close of business on the Record Date and, as such, will be entitled to receive shares of our common stock upon completion of the transactions described in this information statement. We are sending you this document to inform you about the Separation and to provide you with information about our Company and our business and operations upon completion of the Separation.

 

What do I have to do to participate in the Separation?

 

Nothing. You will not be required to pay any cash or deliver any other consideration in order to receive the shares of our common stock that you will be entitled to receive in connection with the Distribution. In addition, no stockholder approval will be required for the Separation, you are not being asked to provide a proxy with respect to any of your shares of BBIG common stock in connection with the Separation, and you should not send us a proxy.

 

Why is BBIG separating the Spin-Off Businesses from its current business operations?

 

The BBIG Board of Directors believes that separating the Spin-Off Businesses from its current business operations and forming a new company to conduct the Spin-Off Businesses will enable the management team of each company to focus on its specific strategies, including, among others, (1) structuring its business to take advantage of growth opportunities in its specific markets, (2) tailoring its business operation and financial model to its specific long-term strategies, and (3) aligning its external financial resources, such as stock, access to markets, credit, and insurance factors, with its particular type of business. The Separation is intended to enhance the long-term performance of each business for the reasons discussed in the section entitled “The Separation—Reasons for the Separation.”

 

What is TYDE?

 

We are a newly formed Nevada corporation that expects to hold, directly or indirectly through our subsidiaries, all of the assets and legal entities, subject to any related liabilities, of the Spin-Off Businesses and will be publicly traded following the Separation. We intend to convert to a Delaware corporation prior to the Distribution.

 

How will BBIG accomplish the Separation of the Spin-Off Businesses?

 

The Separation will be accomplished through a series of transactions, some of which have occurred or are currently occurring, in which (i) the equity interests of the entities that hold assets and liabilities of the Spin-Off Businesses will be transferred to TYDE, (ii) other assets and liabilities will be assigned to or assumed by TYDE, and (iii) BBIG will then distribute all of the outstanding shares of common stock of TYDE to BBIG’s stockholders on a pro rata basis as a distribution.

 

What will I receive in the Distribution?

 

In connection with the Distribution, you will be entitled to receive one (1) share of our common stock for every ten (10) shares of BBIG common stock held by you as of the close of business on the Record Date as well as a cash payment in lieu of any fractional shares, as discussed herein.

 

How does my ownership in BBIG change as a result of the Separation?

 

Your ownership of BBIG stock will not be affected by the Separation.

 

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When will the Distribution occur?

 

The Distribution is expected to occur on or around [●], 2022.

 

As a BBIG stockholder as of the Record Date, how will shares of common stock be distributed to me?

 

At the effective time of the Distribution, we will instruct our transfer agent and Distribution Agent to make book-entry credits for the shares of our common stock that you are entitled to receive as a stockholder of BBIG as of the close of business on the Record Date. Since shares of our common stock will be in uncertificated book-entry form, you will receive share ownership statements in place of physical share certificates.

 

What if I hold my shares through a broker, bank, or other nominee?

 

BBIG stockholders that hold their shares through a broker, bank, or other nominee will have their bank, brokerage, or other account credited with our common stock. For additional information, those stockholders should contact their broker or bank directly.

 

How will fractional shares be treated in the Distribution?

 

You will not receive fractional shares of our common stock in connection with the Distribution. The Distribution Agent will, instead, aggregate and sell on the open market any fractional shares of our common stock that would otherwise be issued in connection with the Distribution, and, if you would otherwise be entitled to receive a fractional share of our common stock in connection with the Distribution, you will instead receive the net cash proceeds of the sale attributable to such fractional share after payment of brokerage fees and commissions, transfer taxes, and other costs, and after making appropriate deductions of the amounts required to be withheld for U.S. federal income tax purposes, if any.

 

What are the U.S. federal income tax consequences to me of the Distribution?

 

The Company believes and it is intended that Distribution should qualify under the Code, as a transaction that is tax-free to BBIG and to its stockholders. On the basis that the Distribution so qualifies for U.S. federal income tax purposes, you should not recognize any gain or loss, and no amount should be included in your income in connection with the Distribution, except with respect to any cash received in lieu of fractional shares. You should review the section entitled “Material U.S. Federal Income Tax Consequences of the Distribution—The Distribution” for a discussion of the material U.S. federal income tax consequences of the Distribution.

 

How will I determine the tax basis I will have in my BBIG shares after the Distribution and the TYDE shares I receive in connection with the Distribution?

 

Generally, for U.S. federal income tax purposes, your aggregate basis in your shares of BBIG common stock and the shares of our common stock that you receive in connection with the Distribution (including any fractional shares for which cash is received) should equal the aggregate basis of BBIG common stock held by you immediately before the consummation of the Distribution. This aggregate basis should be allocated between your shares of BBIG common stock and the shares of our common stock that you receive in connection with the Distribution (including any fractional shares for which cash is received) in proportion to the relative fair market value of each immediately following the consummation of the Distribution. See “Material U.S. Federal Income Tax Consequences of the Distribution—The Distribution.”

 

How will BBIG’s common stock and TYDE’s common stock trade after the Separation?

 

There is currently no public market for our common stock. We have applied to have our common stock listed on Nasdaq under the ticker symbol “TYDE.” BBIG common stock will continue to trade on the Nasdaq under the ticker symbol “BBIG.”

 

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If I sell my shares of BBIG common stock on or before the Distribution Date, will I still be entitled to receive TYDE shares in the Distribution with respect to the sold shares?

 

See “Trading Between Record Date and Distribution Date” on page 38 of this information statement for a discussion of selling BBIG common stock on or before the Distribution Date.

 

Will I receive a stock certificate for TYDE shares distributed as a result of the Distribution?

 

No. Registered holders of BBIG common stock that are entitled to receive the Distribution will receive a book-entry account statement reflecting their ownership of our common stock. For additional information, registered stockholders in the United States, Canada, or Puerto Rico should contact BBIG’s transfer agent, Nevada Agency & Transfer Company, in writing at 50 West Liberty Street, Suite 880, Reno, NV 89501, by telephone toll free at 775-322-0626 or through its website at www.natco.com. See “The Separation—When and How You Will Receive the Distribution of TYDE Shares.”

 

Can BBIG decide to cancel the Distribution even if all the conditions have been met?

 

Yes. BBIG has the right to terminate, or modify the terms of, the Separation at any time prior to the Distribution Date, even if all of the conditions to the Distribution are satisfied.

 

Do I have appraisal rights?

 

No. BBIG stockholders do not have any appraisal rights in connection with the Separation.

 

Will TYDE have any outstanding indebtedness immediately following the Separation?

 

No. We expect to be capitalized with approximately $2 million of cash from BBIG as of the Distribution Date. See “The Separation—Incurrence of Debt.”

 

Does TYDE intend to pay cash dividends on its common stock?

 

No. We do not currently intend to pay cash dividends on our common stock. See “Dividend Policy.”

 

Will the Separation affect the trading price of my BBIG stock?

 

Yes. The trading price of shares of BBIG common stock immediately following the consummation of the Distribution may be expected to be lower than immediately prior to that time because the trading price will no longer reflect the value of the Spin-Off Businesses. We cannot provide you with any assurance regarding the price at which the BBIG shares will trade following the Separation.

 

What will happen to outstanding BBIG equity compensation awards?

 

Outstanding BBIG equity compensation awards will be equitably adjusted simultaneously with the Distribution. These equitable adjustments are intended to maintain, immediately following the consummation of the Distribution, the intrinsic value of the award immediately prior to the consummation of the Distribution. For a more detailed description of how such awards will be adjusted, see “The Separation—Treatment of Outstanding Equity Compensation Awards.”

 

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What will the relationship between BBIG and TYDE be following the Separation?

 

Following the Separation, BBIG will not own any shares of our common stock, and BBIG and we each will be independent, publicly traded companies with our own management teams. In connection with the Separation, we will enter into a Separation and Distribution Agreement and several other agreements with BBIG to effect the Separation and provide a framework for our relationship with BBIG after the Separation. These agreements will provide for the allocation between us and our subsidiaries, on the one hand, and BBIG and its subsidiaries, on the other hand, of the assets, liabilities, legal entities, and obligations associated with the Spin-Off Businesses, on the one hand, and the businesses remaining with BBIG, on the other hand, and will govern the relationship between our company and our subsidiaries, on the one hand, and BBIG and its subsidiaries, on the other hand, subsequent to the Separation. In addition to the Separation and Distribution Agreement, the other principal agreements to be entered into with BBIG include a Shared Services Agreement, and certain commercial agreements. See “The Separation—Agreements with BBIG.”

 

Following the completion of the Distribution, BBIG and TYDE will be independent companies, and the relationship between BBIG and TYDE will be governed by, among others, a Separation and Distribution Agreement, a shared services agreement, a tax matters arrangement, and an employee matters arrangement. These agreements will provide for the allocation between BBIG and TYDE of BBIG’s and TYDE’s assets, employees, liabilities, and obligations (including employee benefits and tax-related assets and liabilities) attributable to periods prior to, at and after the Separation. For additional information, see the sections entitled “The Separation—Agreements with BBIG.”

 

Who is the Distribution Agent, Transfer Agent, and Registrar for TYDE?

 

Nevada Agency & Transfer Company will be the distribution agent for TYDE common stock and the transfer agent and registrar for TYDE common stock. For questions relating to the transfer or mechanics of the stock distribution, you should contact:

 

Nevada Agency & Transfer

50 West Liberty Street, Suite 880

Reno, NV 89501

 

Tel: 775-322-0626 (for stockholders in the United States, Canada, or Puerto Rico)

Tel: 1-919-481-4000 (for stockholders from outside the United States, Canada, and Puerto Rico)

 

Who can I contact for more information?

 

If you have any questions relating to BBIG, you should contact:

 

Vinco Ventures, Inc.
6 North Main Street
Fairport, NY 14450
T: (866) 900-0992

 

After the Separation, if you have questions relating to TYDE, you should contact:

 

Cryptyde, Inc.

200 9th Avenue North, Suite 220

Safety Harbor, Florida 34695
T: (866) 980-2818

 

INFORMATION STATEMENT SUMMARY

 

This summary highlights information contained in this information statement relating to us and shares of our common stock being distributed by BBIG in connection with the Distribution. This summary may not contain all details concerning the Separation or other information that may be important to you. To better understand the Separation and our business and financial position, you should carefully review this entire information statement, including the risk factors, our historical financial statements, our unaudited pro forma combined financial statements, and the respective notes to those historical and pro forma financial statements.

 

Unless otherwise indicated, references in this information statement to fiscal 2021, fiscal 2020, and fiscal 2019 are to the fiscal years ended December 31, 2021, 2020, and 2019, respectively. Our historical financial statements have been prepared on a “carve-out” basis to reflect the operations, financial condition, and cash flows of the Spin-Off Businesses during all periods shown. Our unaudited pro forma combined financial statements adjust our historical financial statements to give effect to our Separation from BBIG and our anticipated post-Separation capital structure.

 

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Our Company

 

We were formed in 2021 to acquire the Web3 Business, Bitcoin Mining Services Business, and Packaging Business from our parent company, BBIG, in anticipation of the Separation. Certain of the businesses we expect to acquire have longer operating histories than us. Accordingly, our discussion of the businesses includes information related to their operations prior to our existence and acquisitions of them.

 

The Web3 Business, through BlockHiro, LLC, plans to use decentralized blockchain technology in established consumer facing industries such as video games, music, and art. TYDE intends to finalize a digital coin minting platform in 2022. TYDE believes its digital coin minting platform will enable TYDE to, together with partners and clients, quickly and efficiently create digital coins for use with projects in established consumer facing industries.

 

The Bitcoin Mining Services Business, through a joint venture, CW Machines, LLC, with Wattum Management Inc. and BBA Technology Inc., is focused on bringing Bitcoin mining to the consumer level by offering Bitcoin mining equipment and co-location services. The Packaging Business manufactures and sells custom packaging for a wide variety of products and through packaging helps customers generate brand awareness and promote brand image.

 

We are headquartered in Safety Harbor, Florida. Upon our separation from BBIG, we expect to trade under the ticker symbol “TYDE” on Nasdaq.

 

Our Strategy

 

We intend to build off the stability provided by our established Packaging Business as our Web3 Business looks to bring blockchain technology into establish consumer facing industries and our Bitcoin Mining Services Business seeks to develop a market of Bitcoin miners requiring access to equipment and services often unavailable to them. We intend to allocate resources among the various Spin Off Businesses based on a continual assessment of the performance and opportunities available to each. We plan to grow both organically, and through strategic acquisitions. Our management believes it is important to for each Spin-Off Business to maintain a dedicated focus on customer satisfaction.

 

Risks Associated with the Proposed Transaction and Our Business

 

In reviewing this information statement, you should carefully consider the matters discussed under the heading “Risk Factors” beginning on page 15.

 

The Separation

 

BBIG previously announced that it was proceeding with a plan to spin-off certain of its operations. We are currently a wholly owned subsidiary of BBIG and expect to hold, directly or indirectly through our subsidiaries, all of the assets and legal entities, subject to any related liabilities, associated with the Spin-Off Businesses. In connection with the Distribution, BBIG stockholders will receive one (1) share of our common stock for every ten (10) shares of BBIG common stock held as of the close of business on the Record Date. The Separation is expected to be completed on or about [●], 2022, the date that is two weeks after the Record Date. Following the Separation, BBIG stockholders as of the close of business on the Record Date will own 100% of the outstanding shares of our common stock, we will be an independent, publicly traded company, and BBIG will retain no ownership interest in our Company.

 

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In connection with the Separation, we will enter into a Separation and Distribution Agreement and several other agreements with BBIG to effect the Separation and provide a framework for our relationship with BBIG after the Separation. These agreements will provide for the allocation between us and our subsidiaries, on the one hand, and BBIG and its subsidiaries, on the other hand, of the assets, liabilities, legal entities, and obligations associated with the Spin-Off Businesses, on the one hand, and the BBIG’s other current businesses, on the other hand, and will govern the relationship between our Company and our subsidiaries, on the one hand, and BBIG and its subsidiaries, on the other hand, subsequent to the Separation. In addition to the Separation and Distribution Agreement, the other principal agreements to be entered into with BBIG include a Shared Services Agreement and certain commercial agreements.

 

The Separation, as described in this information statement, is subject to the satisfaction or waiver of certain conditions. For more information, see “The Separation—Conditions to the Distribution” included elsewhere in this information statement. We cannot provide any assurances that BBIG will complete the Separation.

 

Following a strategic review, it was determined that separating the Spin-Off Businesses from BBIG’s current business operations would be in the best interests of BBIG and its stockholders and that the Separation would create two companies with attributes that best position each company for long-term success, including the following:

 

  Distinct Focus. Each company will benefit from a distinct strategic and management focus on its specific operational and growth priorities. BBIG is expected to continue operations of its media focused business. TYDE will operate the Spin-Off Businesses. Because each company will have smaller portfolio of businesses, management of each company is expected to better allocate time and resources to identifying and executing operational and growth strategies.
     
  Differentiated Investment Opportunities. Each company will offer differentiated and compelling investment opportunities based on its particular operating and financial model, allowing it to more closely align with its natural investor type. TYDE seeks to attract investors looking to invest in companies merging Web3 (decentralized blockchain) technology with consumer facing industries, such as music and art, while also maintaining the stability that comes with an established business, such as the Packaging Business. Whereas BBIG will likely appeal to investors looking to invest in a global media business.
     
  Optimized Balance Sheet and Capital Allocation Priorities. Each company will operate with a capital structure and capital deployment strategy tailored to its specific business model and growth strategies without having to compete with the other for investment capital. TYDE expects to monitor the performance and opportunities of the Spin-Off Businesses, and allocate capital in a manner designed to grow TYDE. BBIG is expected to continue allocating resources towards its media business.
     
  Direct Access to Capital Markets. Each company will have its own equity structure that will afford it direct access to the capital markets and allow it to capitalize on its unique growth opportunities appropriate to its business.
     
  Alignment of Incentives with Performance Objectives. Each company will be able to offer incentive compensation arrangements for employees that are more directly tied to the performance of its business and may enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives. TYDE expects to incentive management and employees with both cash and equity compensation upon attaining earnings, market capitalization, and user acquisition goals. By tailoring management’s and employees’ incentive to the performance of the Spin-Off Businesses, rather than the businesses that remain with BBIG, the Company hopes to advance the Spin-Off Businesses faster than should they remain with BBIG.
     
  Incremental Stockholder Value. Each company will benefit from the investment community’s ability to value its businesses independently within the context of its particular industry with the anticipation that, over time, the aggregate market value of the companies will be higher, on a fully distributed basis and assuming the same market conditions, than if BBIG were to remain under its current configuration.

 

Neither we nor BBIG can assure you that, following the Separation, any of the benefits described above or otherwise in this information statement will be realized to the extent anticipated or at all. For more information, see “Risk Factors.”

 

Regulatory Approvals and Appraisal Rights

 

We must complete the necessary registration under the federal securities laws of our common stock to be issued in connection with the Distribution. We must also complete the applicable listing requirements on Nasdaq for such shares. Other than these requirements, we do not believe that any other material governmental or regulatory filings or approvals will be necessary to consummate the Distribution.

 

BBIG stockholders will not have any appraisal rights in connection with the Distribution.

 

Corporate Information

 

We were incorporated in Nevada on September 21, 2021. We intend to convert to a Delaware corporation prior to the Distribution. We maintain our principal executive offices at 200 9th Avenue North, Suite 220, Safety Harbor, Florida 34695. Our telephone number is (866) 980-2818. Our website will be located at www.cryptyde.com, and we expect it to launch prior the Distribution. Our website and the information contained therein or connected thereto is not incorporated into this information statement or the registration statement of which it forms a part.

 

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SUMMARY OF THE SEPARATION

 

The following is a summary of the material terms of the Separation and other related transactions.

 

Distributing Company Vinco Ventures, Inc.

   
Distributed Company

Cryptyde, Inc.

 

We are currently a wholly owned subsidiary of BBIG and following the Separation we will be an independent, publicly traded company.

   
Distribution Ratio Each holder of BBIG common stock will receive one (1) share of our common stock for every ten (10) shares of BBIG common stock held as of the close of business on the Record Date.
   
Distributed Securities BBIG will distribute 100% of the outstanding shares of our common stock in the Distribution. Based on (i) the approximately 150,118,024 shares of BBIG common stock outstanding as of the Record Date, and applying the distribution ratio of one (1) share of our common stock for every ten (10) shares of BBIG common stock, and (ii) the 1,472,399 shares of our common stock issuable under the terms of a BBIG warrant upon the Distribution, BBIG will distribute approximately 16,484,201 shares of our common stock to BBIG stockholders that hold BBIG common stock as of the close of business on the Distribution Date.
   
Fractional Shares Nevada Agency & Transfer Company, acting as the Distribution Agent, will not distribute any fractional shares of our common stock to BBIG stockholders. As soon as practicable on or after the Distribution Date, the Distribution Agent will, instead, aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices, and distribute the net cash proceeds from the sales, net of brokerage fees and commissions, transfer taxes, and other costs, and after making appropriate deductions of the amounts required to be withheld for U.S. federal income tax purposes, if any, pro rata to each stockholder that would otherwise have been entitled to receive a fractional share in connection with the Distribution. The Distribution Agent will determine when, how, through which broker-dealers, and at what prices to sell the aggregated fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any minimum sale price for the fractional shares or to any interest on the amounts of payments made in lieu of fractional shares. The receipt of cash in lieu of fractional shares generally will be taxable to the recipient stockholders for U.S. federal income tax purposes as described in “Material U.S. Federal Income Tax Consequences of the Distribution—The Distribution.”

 

Record Date The anticipated Record Date will be the close of business on or around [●], 2022.
   
Distribution Date The Distribution Date is expected to be on or around [●], 2022.
   
Distribution

On the Distribution Date, BBIG, with the assistance of Nevada Agency & Transfer Company, acting as the Distribution Agent, will electronically distribute shares of TYDE common stock to your bank or brokerage firm on your behalf or through the systems of the DTC (if you hold the shares through a bank or brokerage firm that uses DTC) or to you in book-entry form. You will not be required to make any payment or surrender or exchange your shares of BBIG common stock or take any other action to receive your shares of TYDE on the distribution date. Your bank or brokerage firm will credit your account for the shares of TYDE common stock or the distribution agent will mail you a book-entry account statement that reflects your shares of TYDE.

 

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Conditions to the Distribution

The Distribution is subject to the satisfaction or waiver of the following conditions, among other conditions described in this information statement:

   
 

● TYDE will hold all of the assets comprising the Spin-Off Businesses.

   
 

● The SEC will have declared effective our registration statement on Form 10, of which this information statement is a part, under the Exchange Act; and no stop order suspending the effectiveness of our registration statement on Form 10 will be in effect.

   
 

● BBIG will have received an opinion of Seward & Kissel LLP, tax counsel to BBIG, to the effect that, among other things, the Distribution, together with certain related transactions, should qualify as tax-free for United States federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Code.

   
 

● Nasdaq will have approved the listing of TYDE common stock, subject to official notice of issuance.

   
  ● No events or developments shall have occurred or exist that, in the sole and absolute judgment of the BBIG Board of Directors, make it inadvisable to effect the Distribution or would result in the Distribution and related transactions not being in the best interest of BBIG or its stockholders.
   
  The fulfillment of these conditions will not create any obligations on BBIG’s part to effect the Separation, and the BBIG Board of Directors has reserved the right, in its sole discretion, to abandon, modify, or change the terms of the Separation, including by accelerating or delaying the timing of the consummation of all or part of the Distribution, at any time prior to the Distribution Date.
   
Stock Exchange Listing We have applied to have our common stock listed on Nasdaq under the ticker symbol “TYDE.”
   

Transfer Agent

Nevada Agency & Transfer Company.
   
Valuation Opinion The Company expects to receive a Valuation Opinion on BBIG that will demonstrate that its value exceeds the $[●] million shareholder’s equity in its capitalization table.
   
U.S. Federal Income Tax Consequences The Company believes and it is intended that the Transfer and the Distribution should qualify under the Internal Revenue Code (the “Code”) as a transaction that is tax-free to BBIG and to its stockholders. You should review the section entitled “Material U.S. Federal Income Tax Consequences of the Distribution—The Distribution” for a discussion of the material U.S. federal income tax consequences of the Distribution. You should consult your own tax advisor as to the particular tax consequences to you of the Distribution, including potential tax consequences under state, local, and non-U.S. tax laws.

 

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RISK FACTORS

 

Certain factors may have a material adverse effect on our business, financial condition and results of operations. You should carefully consider the risks described below, in addition to other information contained in this information statement, including our financial statements and related notes. If any of these risks and uncertainties actually occur, our business, financial condition and results of operations may be materially adversely affected. As a result, the market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties described in this information statement are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business, financial condition and results of operations.

 

Our business is subject to a number of risk included risks related to our business generally, risks related to each of the Spin-Off Businesses individually, risks related to our securities, and risks related to the Separation.

 

Summary of our Risk Factors

 

Risks Related to Our Business Generally

 

  We are a recently formed entity, led by management that has limited experience operating a public company, with little track record and limited historical financial information available,
  We are operating in highly competitive industries that could be affected by a decline in discretionary consumer spending or general economic conditions.
  We must retain our key management personnel.
  We may not be able to raise adequate capital to fund our business, and our ability to raise capital may be negatively affected by the COVID-19 Pandemic. We are also subject to the expenses of operating a public company.
  We face cyber security risks and our insurance coverage may not be adequate to cover losses from both cyber security and other losses.
  COVID-19 or another pandemic may negatively impact our ability to operate the Spin-Off Businesses Risks

 

Related to Our Web 3 Business

 

  We need to innovate and provide Web3 products and services that are attractive to our users.
  The success of our Web3 Business is substantially dependent on the entertainment professionals we partner with and consumer tastes and preferences for Web3 products.
  If the crypto assets we create are determined to be a “security,” we may be subject to regulatory scrutiny, inquiries, investigations, fines, and other penalties.
  Our Web3 Business intends to rely on the Ethereum blockchain, which we have no control over.
  We are subject to current and future legislation and rulemaking regarding digital assets that may result in extraordinary, non-recurring expenses.

 

Risks Related to Our Bitcoin Mining Services Business

 

  Bitcoin mining is capital intensive and if our customers have a decline in discretionary spending, or the price of Bitcoin goes down, they may not engage in Bitcoin mining or buy our products.
  We are subject to shifting public and governmental positions on digital asset mining activity could reduce our revenue and profitability.

 

Risks Related to Our Packaging Business

 

  We are subject to the costs and availability of raw materials, and we rely on a limited number of third-party suppliers of raw materials.
  We may be affected by interruptions in the transportation of the materials we require to produce packaging.

 

Risks Related to Our Securities

 

  We do not expect to issue dividends.
  An active trading market for our securities may never develop, and the price of our securities may be volatile.
  We may issue shares of preferred or common stock in the future, which could dilute your percentage ownership of the Company.

 

Risks Related to the Separation

 

  We may not realize the anticipated benefits from the Separation, and the Separation could harm our business.
  We may have indemnification liabilities to BBIG under the Separation and Distribution Agreement.
  The combined post-Separation value of BBIG and TYDE shares may not equal or exceed the pre-Separation value of BBIG shares.

 

Risks Related to Our Business Generally

 

We are a recently formed entity with little track record and limited historical financial information available.

 

Cryptyde, Inc. was formed on September 21, 2021, in the State of Nevada and plans to convert to a Delaware corporation prior to the Distribution. Our Packaging Business was formed in 1966, however the rest of our businesses were recently started. Because we are in the early stages of executing our business strategy, we cannot provide assurance that, or when, we will be profitable. We will need to make significant investments to develop and operate the Company and expect to incur significant expenses in connection with operating components, including costs for developing technology, talent fees, marketing, and salaries. We expect to incur significant capital, operational and marketing expenses for a few years in connection with our strategy and growth plan. Any failure to achieve or sustain profitability may have a material adverse impact on the value of the shares of our common stock.

 

We must retain our key management personnel.

 

We aim to recruit the most qualified candidates, and strive for a diverse and well-balanced workforce. While we expect to reward and support employees through competitive pay, benefits, and perquisite programs that allow employees to thrive, due to our size we may not be able to provide compensation equal to our more established competitors and may not be able to attract qualified management personnel. If we are unable to retain the key management personnel at our Company, the underlying business could suffer.

 

We could be adversely affected by declines in discretionary consumer spending, consumer confidence and general and regional economic conditions.

 

Our success depends to a significant extent on discretionary consumer spending, which is heavily influenced by general economic conditions and the availability of discretionary income. We believe the markets that all of the Spin-Off Businesses depend on are heavily reliant on discretionary consumer spending. The current economic environment as a result of COVID-19, coupled with high volatility and uncertainty as to the future global economic landscape, may have an adverse effect on consumers’ discretionary income and consumer confidence. Future volatile, negative, or uncertain economic conditions and recessionary periods or periods of significant inflation may adversely impact consumer spending on our products and services, which would materially adversely affect our business, financial condition and results of operations. Such effects can be especially pronounced during periods of economic contraction or slow economic growth.

 

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The Company will operate in highly competitive industries and our revenues, profits or market share could be harmed if we are unable to compete effectively.

 

Each of the Spin-Off Businesses will face competition from existing competitors. Our competitors in the Web3 business will depend on what Web3 products we develop or acquire. We expect competition for Freespace, our video game we are developing and expect to launch in 20222, to include Decentraland, Sandbox and Fluf World. With respect to our Bitcoin Mining Services Business, our competitors include Compass Mining, Miners Dep and Alliance. With respect to the Packaging Business, our competitors include Sutherland Packaging, Acme Corrugated Box Company, and Trenton Corrugated Products, Inc.

 

Competition in each of these areas may increase as a result of technological developments, changes in consumer preferences, economic conditions, changes in market structure, and other factors. Increased competition may divert consumers from our products, which could reduce our revenue or increase our marketing costs. Our competitors may have substantially greater financial resources than we do, and they may be able to adapt more quickly to changes in consumer preferences or devote greater resources to promotion of their offerings and services or to development or acquisition of offerings and services that are perceived to be of a higher quality or value than our offerings and services. As a result, we may not be able to compete successfully against such competitors.

 

We may not be able to fund capital expenditures and investment in projects and offerings.

 

A principal competitive factor for a large portion of the Spin-Off Businesses is the originality and perceived quality of our products and offerings. We will need to make continued capital investments to adapt to constantly changing consumer preferences. Our ability to fund capital expenditures will depend on our ability to generate sufficient cash flow from operations and to raise capital from third parties. We cannot assure you that our operations will be able to generate sufficient cash flow to fund such costs, or that we will be able to obtain sufficient financing on adequate terms, or at all, which could cause us to delay or abandon certain projects or plans.

 

Continuing general market uncertainties resulting from the COVID-19 Pandemic may affect our ability to raise capital.

 

Since the outset of the COVID-19 pandemic, the United States and worldwide national securities markets have undergone unprecedented stress due to the uncertainties of the COVID-19 pandemic and the resulting reactions and outcomes of government, business, and the general population. These uncertainties have resulted in declines in many market sectors. As a result, until the pandemic has stabilized, the markets may not be available to the Company for purposes of raising required capital. Should we not be able to obtain financing when required, in the amounts necessary to execute on our plans in full, or on terms which are economically feasible we may be unable to sustain the necessary capital to pursue our strategic plan and may have to reduce the planned future growth and/or scope of our operations.

 

Cyber security risks and the failure to maintain the integrity of internal, partner, and consumer data could result in damages to our reputation, the disruption of operations and/or subject us to costs, fines or lawsuits.

 

We anticipate that we will collect and retain large volumes of internal, partner and consumer data, including credit card numbers and other personally identifiable information, for business purposes, including for transactional or target marketing and promotional purposes, and our various information technology systems enter, process, summarize and report such data. We also expect to maintain personally identifiable information about our employees. Additionally, our Web 3 Business is predominately digital in nature and relies heavily on our ability to maintain the integrity of our computer systems. The integrity and protection of our customer, employee, and company data will be critical to our business and our customers and employees are likely to have a high expectation that we will adequately protect their personal information. The regulatory environment, as well as the requirements imposed on us by the credit card industry, governing information, security and privacy laws is increasingly demanding and continues to evolve. Maintaining compliance with applicable security and privacy regulations may increase our operating costs and/or adversely impact our ability to market our products and services.

 

We also expect to rely on accounting, financial and operational management information technology systems to conduct our operations. If these information technology systems suffer severe damage, disruption or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, our business, financial condition and results of operations could be materially adversely affected.

 

We may face various security threats, including cyber security attacks on our data (including our vendors’ and customers’ data) and/or information technology infrastructure. Although we will utilize various procedures and controls to monitor and mitigate these threats, there can be no assurance that these procedures and controls will be sufficient to prevent penetrations or disruptions to our systems. Furthermore, a penetrated or compromised data system or the intentional, inadvertent or negligent release or disclosure of data could result in theft, loss, fraudulent or unlawful use of customer, employee, or company data which could harm our reputation or result in remedial and other costs, fines or lawsuits and require significant management attention and resources to be spent. In addition, our insurance coverage and indemnification arrangements that we enter into, if any, may not be adequate to cover all the costs related to cyber security attacks or disruptions resulting from such events.

 

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Our insurance coverage may not be adequate to cover all possible losses that we could suffer and our insurance costs may increase.

 

We expect to seek to maintain comprehensive insurance coverage at commercially reasonable rates. There can be no assurance that our insurance will be sufficient to cover the full extent of all losses or liabilities for which we are insured, and we cannot guarantee that we will be able to obtain insurance policies on favorable terms, or at all.

 

COVID-19 or another pandemic may negatively impact our ability to operate the Spin-Off Businesses which could decrease or eliminate the value of our common stock.

 

COVID-19 has resulted in significant uncertainty in many areas of our businesses. We do not know how long these conditions will last. This uncertainty may to negatively impact our operations. We may experience labor shortages, particularly in our Packaging Business, if our employees are unable or unwilling to come to work. If our suppliers cannot deliver the supplies we need to operate our business or if we are unable to ship our products due to trucking or rail shipping disruptions, we may be forced to suspend operations or reduce production. If we are unable to operate the Packaging Business at or near its historical rate, it may result in unfavorable operating results. Any shut down of operations or reduction in production, especially for an extended period of time, could reduce the value of our common stock.

 

Our management has limited experience in operating a public company.

 

Our executive officers have limited experience in the management of a publicly traded company. Our management team may not successfully or effectively manage its transition to a public company that will be subject to significant regulatory oversight and reporting obligations under federal securities laws. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities, which will result in less time being devoted to the management and growth of our business. We may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal controls over financial reporting required of public companies in the U.S. The development and implementation of the standards and controls necessary for us to achieve the level of accounting standards required of a public company in the U.S. may require costs greater than expected. It is possible that we will be required to expand our employee base and hire additional employees to support our operations as a public company, which will increase our operating costs in future periods.

 

The requirements of being a public company may strain our resources and distract management.

 

We expect to incur significant costs associated with our public company reporting requirements and costs associated with applicable corporate governance requirements. These applicable rules and regulations are expected to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly than those for privately owned companies that are not registrants with the SEC. Compliance with these rules and regulations may divert management’s attention from other business concerns.

 

Our business plan requires additional liquidity and capital resources that might not be available on terms that are favorable to us, or at all.

 

We currently expect to obtain a portion of the capital required for the development and operations of the Company from various forms of public and private financing, which are dependent on factors outside of our control. Our current projected liabilities exceed our current cash projections and we have very limited cash flow from current operations. We therefore will require additional capital and/or cash flow from future operations to fund the Company, our debt service obligations and our ongoing business. There is no assurance that we will be able to raise sufficient additional capital or generate sufficient future cash flow from our future operations to fund our ongoing business. If the amount of capital we are able to raise, together with any income from future operations, is not sufficient to satisfy our liquidity and capital needs, including funding our current debt obligations, we may be required to abandon or alter our plans for the Company. The Company may also have to raise additional capital through the equity market, which could result in substantial dilution to existing stockholders.

 

Our ability to obtain necessary financing may be impaired by factors such as the health of and access to capital markets, our limited track record and the limited historical financial information available, or the substantial doubt about our ability to continue as a going concern. Any additional capital raised through the sale of additional shares of our capital stock, convertible debt or other equity may dilute the ownership percentage of our stockholders.

 

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Risks Related to Our Web3 Business

 

If we do not innovate and provide Web3 based products and services that are attractive to our users, our business could be harmed.

 

Our success depends on our continued innovation to provide products and services that are attractive to potential users and customers. As a result, we must invest significant resources in research and development to first create then improve the attractiveness and comprehensiveness of our products and services and effectively incorporate new Web3 technologies into them. If we are unable to provide products and services that users and customers want to use, then users may become dissatisfied and use competitors’ products and services. If we are unable to continue offering innovative products and services, we may be unable to attract users, which could harm our business, results of operations and financial condition.

 

The success of our Web3 Business is substantially dependent upon the continued success of the entertainment professionals we intend to partner with and our ability to continue to secure favorable contracts with and maintain a good working relationship with these individuals.

 

Our Web3 business is expected to include partnerships with entertainment professionals to help them use Web3 technology to distribute, manage, and receive payment for their art, music, or other content. Our ability to secure partnerships, and maintain a good working relationship, with artists, celebrities, athletes, and other public figures - through agreements, alliances, opportunities and otherwise – is of critical importance to our long-term success.

 

A particular crypto asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty and if we are unable to properly characterize a crypto asset we develop in our Web3 Business as not a security, we may be subject to regulatory scrutiny, inquiries, investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition.

 

The SEC and its staff have taken the position that certain crypto assets fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining whether any given crypto asset is a security is a highly complex, fact-driven analysis that evolves over time, and the outcome is difficult to predict. The SEC generally does not provide advance guidance or confirmation on the status of any particular crypto asset as a security. Furthermore, the SEC’s views in this area have evolved over time and it is difficult to predict the direction or timing of any continuing evolution. It is also possible that a change in the governing administration or the appointment of new SEC commissioners could substantially impact the views of the SEC and its staff. For example, Chair Gary Gensler recently remarked on the need for further regulatory oversight on crypto assets, crypto trading, and lending platforms by the SEC. Public statements by senior officials at the SEC indicate that the SEC does not intend to take the position that Bitcoin or Ethereum are securities (in their current form). Bitcoin and Ethereum are the only crypto assets as to which senior officials at the SEC have publicly expressed such a view. Moreover, such statements are not official policy statements by the SEC and reflect only the speakers’ views, which are not binding on the SEC or any other agency or court and cannot be generalized to any other crypto asset. With respect to all other crypto assets, there is currently no certainty under the applicable legal test that such assets are not securities, notwithstanding the conclusions we may draw based on our assessment regarding the likelihood that a particular crypto asset could be deemed a “security” under applicable laws. Similarly, though the SEC’s Strategic Hub for Innovation and Financial Technology published a framework for analyzing whether any given crypto asset is a security in April 2019, this framework is also not a rule, regulation, or statement of the SEC and is not binding on the SEC.

 

Several foreign jurisdictions have taken a broad-based approach to classifying crypto assets as “securities,” while other foreign jurisdictions, such as Switzerland, Malta, and Singapore, have adopted a narrower approach. As a result, certain crypto assets may be deemed to be a “security” under the laws of some jurisdictions but not others. Various foreign jurisdictions may, in the future, adopt additional laws, regulations, or directives that affect the characterization of crypto assets as “securities.”

 

The classification of a crypto asset as a security under applicable law has wide-ranging implications for the regulatory obligations that flow from the offer, sale, trading, and clearing of such assets. For example, a crypto asset that is a security in the United States may generally only be offered or sold in the United States pursuant to a registration statement filed with the SEC or in an offering that qualifies for an exemption from registration. Persons that effect transactions in crypto assets that are securities in the United States may be subject to registration with the SEC as a “broker” or “dealer.” Platforms that bring together purchasers and sellers to trade crypto assets that are securities in the United States are generally subject to registration as national securities exchanges, or must qualify for an exemption, such as by being operated by a registered broker-dealer as an ATS in compliance with rules for ATSs. Persons facilitating clearing and settlement of securities may be subject to registration with the SEC as a clearing agency. Foreign jurisdictions may have similar licensing, registration, and qualification requirements.

 

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We intend to analyze each crypto asset we develop under our Web3 Business to determine its likeliness to be deemed to be a “security” under applicable laws. Regardless of our conclusions, we could be subject to legal or regulatory action in the event the SEC, a foreign regulatory authority, or a court were to determine that a crypto asset we developed under our Web3 Business is a security under applicable laws. Because our Web3 platforms will not be registered or licensed with the SEC or foreign authorities as a broker-dealer, national securities exchange, or ATS (or foreign equivalents), and we do not seek to register or rely on an exemption from such registration or license to facilitate the offer and sale of crypto assets on our Web3 platforms, we will only develop and distributed digital assets for which we determine there are reasonably strong arguments to conclude that the crypto asset is not a security. We recognize that the application of securities laws to the specific facts and circumstances of crypto assets may be complex and subject to change, and that a listing determination does not guarantee any conclusion under the U.S. federal securities laws.

 

There can be no assurances that we will properly characterize any given crypto asset we develop under our Web3 Business as a security or non-security for purposes of determining whether we will distribute it on a Web3 platform. If the SEC, foreign regulatory authority, or a court were to determine that a crypto asset offered, sold, or traded on one of our future Web3 platform is a security, we would not be able to offer the Web3 product associated with the crypto asset until we are able to do so in a compliant manner. A determination by the SEC, a foreign regulatory authority, or a court that an asset that we support in the future for trading on our platform constitutes a security may also result in us determining that it is advisable to remove assets from our platform that have similar characteristics to the asset that was determined to be a security. In addition, we could be subject to judicial or administrative sanctions for failing to offer or sell the crypto asset in compliance with the registration requirements, or for acting as a broker, dealer, or national securities exchange without appropriate registration. Such an action could result in injunctions, cease and desist orders, as well as civil monetary penalties, fines, and disgorgement, criminal liability, and reputational harm.

 

Our Web3 Business intends to rely on the Ethereum blockchain, which we have no control over.

 

Our Web3 Business intends to operate on the Ethereum blockchain. Like other blockchains, Ethereum blockchain relies on a network of computers to run certain software programs to solve complex transactions in competition with other mining operations and to process transactions. We have no control over these networks, which subjects us to certain risks. For example, to the extent that any miners cease to record transactions in solved blocks, such transactions will not be recorded on the Ethereum blockchain. Currently, there are no known incentives for miners to elect to exclude the recording of transactions in solved blocks; however, to the extent that any such incentives arise (e.g., a collective movement among miners or one or more mining pools forcing Ethereum users to pay transaction fees as a substitute for or in addition to the award of new Ethereum upon the solving of a block), actions of miners solving a significant number of blocks could delay the recording and confirmation of transactions on the Ethereum blockchain. Such delay could harm our business, results of operations, and financial condition.

 

Incidents or adverse publicity concerning the Company or our public-figure partners could harm our reputation as well as negatively impact our revenues and profitability.

 

Our reputation is an important factor in the success of our Web3 Business. Our ability to attract and retain both partners and customers depends, in part, upon the external perceptions of our Company, the brands and individuals we are associated with, and our corporate and management integrity. If market recognition or the perception of the Company diminishes, there may be a material adverse effect on our revenues, profits, and cash flow. In addition, changing public perception of the brand and public figures we partner with could negatively impact our business and results of operations.

 

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Changes in consumer tastes and preferences for Web3 products could reduce demand for our offerings and products and adversely affect the profitability of our Web3 Business.

 

The success of our Web3 Business depends on our ability to consistently provide, maintain and innovate Web3 products that meet changing consumer preferences. Our success depends in part on the continued and increasing popularity of Web3 products and on our ability to successfully predict and adapt to tastes and preferences of this consumer group. If our Web3 products do not achieve sufficient consumer acceptance or if consumer preferences change or consumers are drawn to other products, our business, financial condition, or results of operations could be materially adversely affected.

 

Blockchain technology may expose us to specially designated nationals or blocked persons or cause it to violate provisions of law.

 

We are subject to the rules enforced by OFAC, including regarding sanctions and requirements not to conduct business with persons named on its specially designated nationals list. However, because of the pseudonymous nature of blockchain transactions, we may inadvertently and without our knowledge engage in transactions with persons named on OFAC’s specially designated nationals list, which may expose us to regulatory sanctions and adversely affect our business, financial condition, and results of operations.

 

Current and future legislation and rulemaking regarding digital assets may result in extraordinary, non-recurring expenses and could have a material adverse effect on our business, financial condition and results of operations.

 

Current and future legislation and rulemaking by the Commodity Futures Trading Commission (the “CFTC”) and SEC or other regulators, including interpretations released by a regulatory authority, may impact the manner in which digital assets are treated. For example, digital assets derivatives are not excluded from the definition of “commodity future” by the CFTC. Furthermore, according to the CFTC, digital assets fall within the definition of a commodity under the Commodities Exchange Act (the “CEA”) and as a result, we may be required to register and comply with additional regulations under the CEA, including additional periodic reporting and disclosure standards and requirements. We may also be required to register as a commodity pool operator and to register as a commodity pool with the CFTC through the National Futures Association. If we are required to register with the CFTC or another governmental or self-regulatory authority, we may seek to cease certain of our operations to avoid the registration requirement. Modifying our business to avoid a registration requirement with the CFTC or another governmental or self-regulatory authority may have a material adverse effect on our business, financial condition, and results of operations.

 

Risks Related to Our Bitcoin Mining Services Business

 

The business of the end users of our Bitcoin mining equipment is capital intensive, and declines in discretionary income could limit the market for our Bitcoin mining equipment, which could have a material adverse effect on our business, financial condition, and results of operations.

 

Our Bitcoin Mining equipment is intended to lower the costs of constructing, developing, operating and maintaining digital asset mining and hosting facilities. However, users of our Bitcoin mining equipment may still face substantial costs associated with electricity usage, equipment replacement and upgrading, and other factors. A decline in discretionary income could prevent our intended end users from engaging in Bitcoin mining, and in turn from purchasing our Bitcoin mining equipment.

 

If future prices of Bitcoin are not sufficiently high, our business, results of operations, and financial condition could be materially and adversely affected, which may have a negative impact on the trading price of our securities.

 

Our Bitcoin mining equipment allows users to engage in Bitcoin mining. If future prices of Bitcoin are not sufficiently high to cause our target customers to engage in Bitcoin mining and in turn purchase our products and services, our sales of Bitcoin mining equipment may be affected and our business, results of operations, and financial condition could be materially and adversely affected.

 

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Our business is heavily impacted by social, political, economic and other events and circumstances in the United States and abroad. Shifting positions on digital asset mining activity could reduce our revenue and profitability.

 

Our business is heavily impacted by social, political, economic, and other events and circumstances in the United States and abroad. These events and circumstances are largely outside of our influence and control. For example, we believe that historically China was a location of significant digital asset mining at low electric power rates. Recently, China and other foreign governments have taken action to prohibit or significantly restrict digital asset mining. Should China or other countries that currently restrict digital asset mining eliminate such restrictions or actually seek to enhance such mining activity, the demand for our Bitcoin mining equipment may be lowered, which would likely reduce the revenue and profitability of our Bitcoin Mining Services Business.

 

We are subject to risks associated with our customers’ need for significant electric power and the limited availability of power resources, which could have a material adverse effect on our business, financial condition and results of operations.

 

Our customers using our Bitcoin mining equipment require a significant amount of electric power. Energy costs and availability are vulnerable to seasonality, with increased costs primarily in the summer months and risks of outages and power grid damage as a result of inclement weather, animal incursion, sabotage, and other events out of our control. Although we aim to offer energy efficient Bitcoin mining equipment, there can be no assurance that there will be sufficient energy availability to meet the needs of our Bitcoin mining equipment customers.

 

Governments and government regulators, at the federal, state, and local levels, may potentially restrict the ability of electricity suppliers to provide electricity to users of our Bitcoin mining equipment, which could have a material adverse effect on our business, financial condition and results of operations.

 

Governments or government regulators, at the federal, state, and local levels, may potentially restrict electricity suppliers from providing electricity to Bitcoin mining hosting facilities, including facilities used by our Bitcoin mining equipment target customers and facilities offered as part of our co-location services. For example, on May 14, 2018, the Chelan County Public Utility District in Washington approved a three-month extension of a moratorium on the approval of electric service for new digital asset transaction operators in Chelan County. In March 2018, the City of Plattsburgh, New York, placed an 18-month moratorium on transaction processing to preserve natural resources, the health of its residents and the “character and direction” of the city after residents complained about significantly higher electricity bills. In the event government regulators issue moratoriums or impose bans or restrictions involving transaction processing in jurisdictions in which our target Bitcoin mining equipment customers operate, the sales of our Bitcoin mining equipment may be negatively impacted and could have a material adverse effect our business, financial condition, and results of operations.

 

Risks Related to Our Packaging Business

 

An increase in the cost or a reduction in the availability of wood fiber, other raw materials, energy and transportation may have an adverse effect on our profitability and results of operations.

 

Wood fiber, including old corrugated containers (“OCC”) is the principal raw material in many parts of the paper and packaging industry, including the corrugated cardboard on which our Packaging Business relies. Wood fiber is a commodity, and prices historically have been cyclical and have varied on a regional basis. Environmental litigation and regulatory developments have caused, and may cause in the future, significant reductions in the amount of timber available for commercial harvest in the United States. In addition, future domestic or foreign legislation and litigation concerning the use of timberlands, the protection of endangered species, the promotion of forest health and the response to and prevention of catastrophic wildfires could also affect timber supplies. Availability of harvested timber may further be limited by fire, insect infestation, disease, ice storms, windstorms, flooding and other causes, thereby reducing supply and increasing prices. Demand for OCC, especially from China, could result in shortages or spikes in the cost of OCC.

 

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Industry supply of commodity paper and wood products is also subject to fluctuation, as changing industry conditions can influence producers to idle or permanently close individual machines or entire mills. Oversupply in these markets can also result from producers introducing new capacity in response to favorable short-term pricing trends. Industry supply of commodity papers and wood products is also influenced by overseas production capacity, which has grown in recent years and is expected to continue to grow. Wood fiber pricing is subject to regional market influences, and the cost of wood fiber may increase in particular regions due to market shifts in those regions. In addition, the ability to obtain wood fiber from foreign countries may be impacted by economic, legal and political conditions in those countries as well as transportation difficulties.

 

Energy is a significant input cost for the paper and packaging industry. Increases in energy prices can be expected to adversely impact businesses.

 

Because we rely on a supply of corrugated sheets of cardboard to produce packaging, these uncertainties in the supply and cost of raw materials used to produce paper product could affect the availability of the corrugated sheets of cardboard we rely on. Increases in costs may need to be passed on to our customers, and ultimately may negatively affect our business.

 

Disruptions in transportation could adversely affect our supply of raw materials and could have an adverse effect on our results of operations, profitability, and liquidity.

 

Since we receive our supply of raw material from suppliers that use third-party shippers that rely on truck, rail, and other forms of transportation, the reduced availability of those modes of transportation could limit our ability to promptly produce products for our customers, which could have an adverse effect on our operations, financial condition, and liquidity. In addition, the increased cost of transportation of raw material from our suppliers may reduce our profitability if we are not able to recover those costs through price increases for our products.

 

Paper and packaging companies face strong competition.

 

We face competition from numerous competitors, domestic as well as foreign. Some of our competitors are larger, more vertically integrated companies that have greater financial and other resources, greater manufacturing economies of scale, greater energy self-sufficiency, and/or lower operating costs.

 

Certain paper and wood products are vulnerable to long-term declines in demand due to competing technologies or materials.

 

Companies in the paper and packaging industry are subject to possible declines in demand for their products as the use of alternative materials and technologies grows and the prices of such alternatives become more competitive. Any substantial shift in demand from wood and paper products to competing technologies or materials could result in a material decrease in sales of our products and could adversely affect our results of operations, cash flows, and financial position. We cannot ensure that any efforts we might undertake to adapt our product offerings to such changes would be successful or sufficient.

 

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Because we service customers in a variety of industries, we may be particularly impacted by general economic downturns.

 

Our Packaging Business provides packaging for third-party customers in a variety of industries, including pharmaceutical and e-commerce companies. Certain of our Packaging Business customers provide goods that are discretionary items for consumers. Therefore, their business, and in turn our Packaging Business, depends on the strength of the retail, commercial, and industrial sectors of the economy in various parts of the world, and trends therein. During a downturn in the economy, consumer purchases of discretionary items are affected, which could materially lower our customers’ demand for our packaging products, and negatively affect our profitability and financial condition.

 

We incur significant expenses to maintain our manufacturing equipment and any interruption in the operations of our facilities may harm our operating performance.

 

We regularly incur significant expenses to maintain our manufacturing equipment and facilities. The machines and equipment that we use to produce our products are complex, interdependent, and have many parts. We must perform routine maintenance on our equipment and will have to periodically replace a variety of parts

 

Disruptions to our Packaging Business could occur due to any number of circumstances, including prolonged power outages, mechanical or process failures, shortages of raw materials, natural catastrophes, disruptions in the availability of transportation, labor disputes, terrorism, changes in or non-compliance with environmental or safety laws, and the lack of availability of services from any of our facilities’ key suppliers. Any facility shutdowns may be followed by prolonged startup periods, regardless of the reason for the shutdown. Any prolonged disruption in operations at any of our facilities could cause significant lost production, which would have a material adverse effect on our results of operations.

 

We rely on a limited number of third-party suppliers for certain raw materials required for the production of our products.

 

Our dependence on a limited number of third-party suppliers, and the challenges we may face in obtaining adequate supplies of raw materials, involve several risks, including limited control over pricing, availability, quality and delivery schedules. We cannot be certain that our current suppliers will continue to provide us with the quantities of these raw materials that we require or will continue to satisfy our anticipated specifications and quality requirements. Any supply interruption in limited raw materials could materially harm our ability to manufacture our products until a new source of supply, if any, could be identified and qualified. Although we believe there are other suppliers of these raw materials, we may be unable to find a sufficient alternative supply channel in a reasonable time or on commercially reasonable terms. Any performance failure on the part of our suppliers could interrupt production of our products, which would have a material adverse effect on our business.

 

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Risks Related to Our Securities

 

We currently do not intend to pay dividends on our common stock. Consequently, our stockholders’ ability to achieve a return on their investment will depend on appreciation in the price of our common stock.

 

We do not expect to pay cash dividends on our common stock. Any future dividend payments are within the absolute discretion of our Board of Directors and will depend on, among other things, our results of operations, working capital requirements, capital expenditure requirements, financial condition, level of indebtedness, contractual restrictions with respect to payment of dividends, business opportunities, anticipated cash needs, provisions of applicable law and other factors that our Board of Directors may deem relevant.

 

As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal control over financial reporting in order to comply with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

 

As a result of becoming a public company we will be subject to SEC reporting and other regulatory requirements. We will incur expenses and diversion of our management’s time in its efforts to comply with Section 404 of the Sarbanes-Oxley Act regarding internal controls over financial reporting. Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm when required, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retrospective changes to our consolidated financial statements or identify other areas for further attention or improvement. If we are unable to assert that our internal controls over financial reporting are effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC.

 

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An active, liquid trading market for our common stock may not develop, which may limit your ability to sell your shares.

 

Prior to this offering, there was no public market for our common stock. Although we have applied to list our common stock on the Nasdaq under the trading symbol “TYDE,” an active trading market for our common stock may never develop or be sustained following the Distribution. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of our common stock, and you may not be able to sell your shares of our common stock.

 

We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.

 

Our Restated Certificate of Incorporation is expected to authorize us to issue one or more series of preferred stock. Our Board of Directors is expected have the authority to determine the preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium to the market price, and materially adversely affect the market price and the voting and other rights of the holders of our common stock.

 

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The trading price of our securities will likely be, and continue to be, volatile and you could lose all or part of your investment.

 

The trading price of our securities could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control, including but not limited to our general business condition, the release of our financial reports and general economic conditions and forecasts. Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general, and Nasdaq, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future. Any of these factors could have a material adverse effect on our stockholders’ investment in our securities, and our securities may trade at prices significantly below the price they paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.

 

Anti-takeover provisions contained in our Restated Certificate of Incorporation and Restated Bylaws, which we plan to have adopted prior to the Distribution, as well as provisions of Delaware law, which we expect to be subject to prior to the Distribution, could impair a takeover attempt.

 

Our Restated Certificate of Incorporation and Restated Bylaws, which we plan to have adopted prior to the Distribution, as well as provisions of Delaware law, which we expect to be subject to prior to the Distribution, contain anti-takeover provisions. These provisions could limit the opportunity for our shareholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock. For a discussion of the anti-takeover provisions, See “Description of Capital Stock – Anti-Takeover Provisions.”

 

Our Restated Certificate of Incorporation, which we plan to have adopted prior to the Distribution, designates Delaware as the exclusive forum for certain litigation, which may limit our stockholders’ ability to choose a judicial forum for disputes with us.

 

TYDE’s Restated Certificate of Incorporation and Restated Bylaws, which we plan to have adopted prior to the Distribution, will contain, and Delaware law, which we expect to be subject to prior to the Distribution, contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with TYDE’s Board of Directors rather than to attempt a hostile takeover. These provisions are expected to include, among others:

 

  rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;

 

  the right of TYDE’s Board of Directors to issue preferred stock without stockholder approval;

 

  the ability of TYDE’s directors, and not stockholders, to fill vacancies (including those resulting from an enlargement of the Board of Directors) on TYDE’s Board of Directors;

 

  the division of TYDE’s Board of Directors into three classes of directors, with each class serving a staggered term; and

 

  a provision that directors serving on a classified board may be removed by stockholders only for cause.

 

In addition, following the Distribution, TYDE will be subject to Section 203 of the DGCL. Section 203 provides that, subject to limited exceptions, persons that (without prior board approval) acquire, or are affiliated with a person that acquires, more than 15 percent of the outstanding voting stock of a Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or its affiliate becomes the holder of more than 15 percent of the corporation’s outstanding voting stock.

 

TYDE believes these provisions will protect its stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with TYDE’s Board of Directors and by providing TYDE’s Board of Directors with more time to assess any acquisition proposal. These provisions are not intended to make TYDE immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that TYDE’s Board of Directors determines is not in the best interests of TYDE and its stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

 

In addition, an acquisition or further issuance of TYDE’s stock could trigger the application of Section 355(e) of the Code. For a discussion of Section 355(e), see the section entitled “Material United States Federal Income Tax Consequences of the Distribution”. Under the tax matters arrangement, TYDE would be required to indemnify BBIG for the tax imposed under Section 355(e) of the Code resulting from an acquisition or issuance of TYDE stock, even if TYDE did not participate in or otherwise facilitate the acquisition, and this indemnity obligation might discourage, delay or prevent a change of control that you may consider favorable.

 

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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

 

The trading market for our securities will depend in part on the research and reports that securities or industry analysts publish about us or our business. If only a limited number of securities or industry analysts commence coverage of our Company, the trading price for our securities would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who covers us downgrades our stock or publishes unfavorable research about our business, our stock price may decline. If one or more of these analysts ceases coverage of our Company or fails to publish reports on us regularly, demand for our securities could decrease, which might cause our stock price and trading volume to decline.

 

We are an emerging growth company and a smaller reporting company within the meaning of the Securities Act, and we are taking advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.

 

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and are taking advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a registration statement under the Securities Act declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company, which is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.

 

We will remain an emerging growth company until the earlier of: (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of the Company’s initial public offering, (b) in which we have total annual revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of the prior fiscal year’s second fiscal quarter; and (2) the date on which we have issued more than $1.00 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” have the meaning associated with it in the JOBS Act.

 

Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of any fiscal year for so long as either (1) the market value of our shares of common stock held by non-affiliates did not equal or exceed $250 million as of the prior September 30, or (2) our annual revenues did not equal or exceed $100 million during such completed fiscal year and the market value of our shares of common stock held by non-affiliates did not equal or exceed $700 million as of the prior September 30.

 

Because we subject the above listed reduced reporting requirements, investors may not be able to compare us to other companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.

 

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Your percentage ownership in our company may be diluted in the future.

 

In the future, your percentage ownership in our company may be diluted because of equity issuances for warrant exercises, acquisitions, strategic investments, capital market transactions, or otherwise, including equity compensation awards that we grant to our directors, officers and employees. Our Compensation Committee can be expected to grant additional equity compensation awards to our employees after the Separation. These awards would have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock. From time to time, we may issue additional equity compensation awards to our employees under our employee benefits plans.

 

In addition, our Restated Certificate of Incorporation is expected to authorize our Board of Directors to create and issue, without the approval of our stockholders, one or more series of preferred stock having such powers, preferences, and rights, if any, and such qualifications, limitations, and restrictions, if any, as established by our Board of Directors. The terms of one or more series of preferred stock that is so created and issued by our Board of Directors may dilute the voting power or reduce the value of our common stock. For example, our Board of Directors could create and issue one or more series of preferred stock having the right to elect one or more of our directors (in all events or on the happening of specified events) and/or the right to veto specified transactions. Similarly, the repurchase or redemption rights or dividend, distribution, or liquidation rights of a series of preferred stock created and issued by our Board of Directors could affect the residual value of the common stock. See “Description of Capital Stock—Preferred Stock.”

 

Our common stock will be subordinate to all of our future indebtedness and any series of preferred stock, and effectively subordinated to all indebtedness and preferred equity claims against our subsidiaries.

 

Shares of our common stock will rank junior to all of our future indebtedness and other liabilities. Additionally, holders of our common stock may become subject to the prior dividend and liquidation rights of holders of any series of preferred stock that our Board of Directors may designate and issue without any action on the part of the holders of our common stock. Furthermore, our right to participate in a distribution of assets upon any of our subsidiaries’ liquidation or reorganization is subject to the prior claims of that subsidiary’s creditors.

 

Investors are subject to litigation risk and their respective investments in the shares of our common stock may be lost as a result of our legal liabilities or the legal liabilities of our affiliates.

 

We or our affiliates may from time to time be subject to claims by third parties and may be plaintiffs or defendants in civil proceedings. There can be no assurance that claims will not be brought in the future if we cannot generate the revenue that we forecast or raise sufficient capital to pay our liabilities. The expense of prosecuting claims, for which there is no guarantee of success, and/or the expense of defending against claims by third parties and paying any amounts pursuant to settlements or judgments, would generally be borne by the Company and could result in the reduction or complete loss of all of the assets of the Company, and investors in our common stock could lose all or a part of their investment.

 

Risks Related to the Separation

 

We may not realize the anticipated benefits from the Separation, and the Separation could harm our business.

 

We may not be able to achieve the full strategic and financial benefits expected to result from the Separation and such benefits may be delayed or not occur at all. The Separation is designed to enhance strategic and management focus, provide a distinct corporate identity, and allow us to efficiently allocate resources and deploy capital. We may not achieve these and other anticipated benefits for a variety of reasons, including the following:

 

  the Separation will require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business;

 

  following the Separation, we may be more susceptible to economic downturns and other adverse events than if we were still a part of BBIG;

 

  following the Separation, our business will be less diversified than BBIG’s business prior to the Separation;

 

  following the Separation, our business will experience a loss of scale and access to certain financial, managerial, and professional resources as well as product and brand power influence and recognition with some customers from which we have benefited in the past; and

 

  actions required to separate the respective businesses could disrupt our operations.

 

If we fail to achieve some or all of the benefits expected to result from the Separation, or if such benefits are delayed, our business could be harmed.

 

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We have no history operating as an independent company, and our historical financial information is not necessarily representative of the results that we would have achieved as an independent, publicly traded company and may not be a reliable indicator of our future results.

 

Our historical financial information included in this information statement has been derived from BBIG’s consolidated financial statements and accounting records is not necessarily indicative of our future operating results, financial condition, or cash flows, nor do they reflect what our operating results, financial condition, or cash flows would have been as an independent public company during the periods presented. In particular, the historical financial information included in this information statement is not necessarily indicative of our future operating results, financial condition, or cash flows primarily because of the following factors:

 

  prior to the Separation, our business was operated by BBIG as part of its broader corporate organization rather than as an independent company, and BBIG or one of its affiliates provided support for various corporate functions for us, such as information technology, medical insurance, procurement, logistics, marketing, human resources, compliance, legal, finance, and internal audit;

 

  our historical financial results reflect the direct, indirect, and allocated costs for such services historically provided by BBIG, and these costs may significantly differ from the comparable expenses we would have incurred as an independent company;

 

  our working capital requirements and capital expenditures historically have been satisfied as part of BBIG’s corporate-wide cash management and centralized funding programs, and our cost of debt and other capital may significantly differ from that which is reflected in our historical combined financial statements;

 

  the historical financial information may not fully reflect the costs associated with the Separation, including the costs related to being an independent company;

 

  our historical financial information does not reflect our obligations under the various transitional and other agreements we will enter into with BBIG in connection with the Separation, though costs under such agreements are expected to be broadly similar to what was charged to the business in the past; and

 

  our business currently is integrated with that of BBIG and we benefit from BBIG’s size and scale in costs, employees, and vendor and customer relationships and the costs we will incur as an independent company may significantly exceed comparable costs we would have incurred as part of BBIG and some of our customer relationships may be weakened or lost.

 

We based the pro forma adjustments included in this information statement on available information and assumptions that we believe are reasonable and factually supportable. Actual results, however, may vary. In addition, our unaudited pro forma financial information included in this information statement may not give effect to various ongoing additional costs that we may incur in connection with being an independent public company. Accordingly, our unaudited pro forma combined financial statements do not reflect what our operating results, financial condition, or cash flows would have been as an independent public company and are not necessarily indicative of our future financial condition or future operating results.

 

See “Unaudited Pro Forma Combined Financial Statements” and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this information statement.

 

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Until the Separation occurs, BBIG will have sole discretion to change the terms of the Separation in ways that may be unfavorable to us.

 

Until the Separation occurs, the Spin-Off Businesses will remain business segments of BBIG. Completion of the Separation remains subject to the satisfaction or waiver of certain conditions, some of which are in the sole and absolute discretion of BBIG, including final approval by the Board of Directors of BBIG. Additionally, BBIG has the sole and absolute discretion to change certain terms of the Separation, including the amount of any cash transfer between us, the amount of our indebtedness, and the allocation of contingent liabilities, which changes could be unfavorable to us. In addition, BBIG may decide at any time prior to the completion of the Separation not to proceed with the Separation.

 

Potential indemnification liabilities to BBIG pursuant to the Separation and Distribution Agreement could materially and adversely affect our financial condition, results of operations, and cash flows.

 

The Separation and Distribution agreement, among other things, provides for indemnification obligations designed to make TYDE financially responsible for certain liabilities that may exist relating to its business activities. If TYDE is required to indemnify BBIG under the circumstances set forth in the Separation and Distribution Agreement, TYDE may be subject to substantial liabilities.

 

TYDE may be subject to certain contingent liabilities of BBIG following the Separation.

 

After the Separation, there is the possibility that certain liabilities of BBIG could become TYDE’s obligations. For example, under the Code and the related rules and regulations, each corporation that was a member of the BBIG United States consolidated group during a taxable period or portion of a taxable period ending on or before the effective time of the Distribution is jointly and severally liable for the United States federal income tax liability of the entire BBIG United States consolidated group for that taxable period. Consequently, if BBIG is unable to pay the consolidated United States federal income tax liability for a prior period, TYDE could be required to pay the entire amount of such tax which could be substantial and in excess of the amount allocated to it under the tax matters arrangement between it and BBIG Other provisions of federal law establish similar liability for other matters, including laws governing tax-qualified pension plans as well as other contingent liabilities.

 

In connection with the Separation, BBIG will indemnify TYDE for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure TYDE against the full amount of such liabilities, or that BBIGs ability to satisfy its indemnification obligation will not be impaired in the future.

 

BBIG will agree to indemnify TYDE for certain pre-spin-off liabilities. However, third parties could also seek to hold TYDE responsible for liabilities that BBIG has agreed to retain, and there can be no assurance that the indemnity from BBIG will be sufficient to protect TYDE against the full amount of such liabilities, or that BBIG will be able to fully satisfy its indemnification obligations. In addition, BBIG’s insurers may attempt to deny coverage to TYDE for liabilities associated with certain occurrences of indemnified liabilities prior to the Separation.

 

After the Separation, we will only have limited access to the insurance policies maintained by BBIG for events occurring prior to the Separation, BBIG’s insurers may deny or attempt to deny coverage to us under such policies, there can be no assurance that we will be able to obtain insurance coverage following the Separation on terms that justify its purchase, and any such insurance may not be adequate to offset costs associated with certain events.

 

In connection with the Separation, we will enter into agreements with BBIG to address various matters associated with the Separation, including insurance coverage. The Separation and Distribution Agreement will provide that following the Separation, we will no longer have insurance coverage under BBIG insurance policies in connection with events occurring before, as of, or after the Separation, other than coverage for (i) events occurring prior to the Separation and covered by occurrence-based policies of BBIG as in effect as of the Separation and (ii) events or acts occurring prior to the Separation and covered by claims-made policies of BBIG for which a claim was received prior to the Separation. However, after the Separation, BBIG’s insurers may deny or attempt to deny coverage to us for losses associated with occurrences or claims made prior to the Separation. Accordingly, we may be required to temporarily or permanently bear the costs of such lost coverage. In addition, we will have to obtain our own insurance policies after the Separation is complete. Although we expect to have insurance policies in place as of the date of the Separation that cover certain, but not all, hazards that could arise from our operations, we can provide no assurance that we will be able to obtain or maintain such coverage, that the cost of such coverage will be similar to that incurred by BBIG, or that such coverage will be adequate to protect us from costs incurred with certain events. The occurrence of an event that is not insured or not fully insured could have a material adverse effect on our business, operating results, and financial condition. See “The Separation—Agreements with BBIG.”

 

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After the Separation, some of our directors and officers may have actual or potential conflicts of interest because of their equity ownership in BBIG.

 

Because of their current or former positions with BBIG, following the Separation, some of our directors and executive officers may own shares of BBIG common stock, and the individual holdings may be significant for some of these individuals compared to their total assets. This ownership may create, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for BBIG or us. For example, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between BBIG and us regarding the terms of the agreements governing the Separation and the relationship thereafter between the companies.

 

The combined post-Separation value of BBIG and TYDE shares may not equal or exceed the pre-Separation value of BBIG shares.

 

After the Separation, we expect that BBIG common stock will continue to be traded on the Nasdaq. We have applied to list the shares of our common stock on Nasdaq. We cannot assure you that the combined trading prices of BBIG common stock and our common stock after the Separation, as adjusted for any changes in the combined capitalization of both companies, will be equal to or greater than the trading price of BBIG common stock prior to the Separation. Until the market has fully evaluated the business of BBIG without our business and potentially thereafter, the price at which BBIG common stock trades may fluctuate significantly. Similarly, until the market has fully evaluated our business and potentially thereafter, the price at which our common stock trades may fluctuate significantly.

 

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We potentially could have received better terms from unaffiliated third parties than the terms we received in our agreements with BBIG.

 

The agreements we entered into with BBIG in connection with the Separation were negotiated while we were still part of BBIG’s business. See “The Separation—Agreements with BBIG.” The terms of the agreements negotiated in the context of the Separation relate to, among other things, the allocation of assets, intellectual property, liabilities, rights, and other obligations between BBIG and us as well as services to be provided to us by BBIG on an interim basis. Arm’s-length negotiations between BBIG and an unaffiliated third-party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third-party.

 

If the Transfer and the Distribution do not qualify as a transaction that is tax-free for U.S. federal income tax purposes, BBIG and/or holders of BBIG common stock could be subject to significant tax liability.

 

It is intended that the Transfer and the Distribution should qualify as a tax-free transaction under Section 368(a)(1)(D) and Section 355 of the Code. The consummation of the Separation and the related transactions is conditioned upon the receipt of an opinion of Seward & Kissel LLP substantially to the effect that such transactions should qualify for this intended tax treatment. The opinion will rely on certain representations, assumptions, and undertakings, including those relating to the past and future conduct of our business, and the opinion would not be valid if such representations, assumptions, and undertakings were incorrect. Despite the opinion, the Internal Revenue Service, or the IRS, could determine that the Transfer or the Distribution should be treated as a taxable transaction for U.S. federal income tax purposes if it determines that any of the representations, assumptions, or undertakings that were relied upon for the opinion are false or have been violated, if it disagrees with the conclusions in the opinion, or for other reasons, including as a result of significant changes in the stock ownership of BBIG or us after the Distribution Date. For more information regarding the opinion see “Material U.S. Federal Income Tax Consequences of the Distribution.”

 

Even if the Transfer and the Distribution otherwise qualify under Section 368(a)(1)(D) and Section 355 of the Code, the Distribution could result in a material U.S. federal income tax liability to BBIG (but not to holders of BBIG common stock) under Section 355(e) of the Code if one or more persons acquire, directly or indirectly, a 50% or greater interest (measured by either vote or value) in the stock of BBIG or in the stock of our company (or any successor corporation) as part of a plan or series of related transactions that includes the Distribution. Any acquisition of the stock of BBIG or our company (or any successor corporation) within two years before or after the Distribution would generally be presumed to be part of a plan that includes the Distribution, although the parties may be able to rebut that presumption under certain circumstances. The process for determining whether an acquisition is part of a plan under these rules is complex, inherently factual in nature, and subject to a comprehensive analysis of the facts and circumstances of the particular case. Notwithstanding the opinion of Seward & Kissel LLP described above, BBIG or we might inadvertently cause or permit a prohibited change in ownership of BBIG or us, thereby triggering tax liability to BBIG.

 

If either the Transfer or the Distribution fails to qualify for tax-free treatment for any reason, BBIG and/or holders of BBIG common stock could be subject to substantial U.S. taxes as a result of the Transfer and the Distribution and we could incur significant liabilities under applicable law or as a result of the sections dealing with taxes contained in the Shared Services Agreement. See “Material U.S. Federal Income Tax Consequences of the Distribution.”

 

If the Distribution is taxable to BBIG as a result of a breach by us of any covenant or representation made by us in the Tax Matters Arrangement, we will generally be required to indemnify BBIG, and the obligation to make a payment on this indemnification obligation could have a material adverse effect on us.

 

As described above, it is intended that the Transfer and the Distribution should qualify as tax-free transactions to BBIG and to holders of BBIG common stock, except with respect to any cash received in lieu of fractional shares. If the Transfer and/or the Distribution are not so treated or are taxable to BBIG (see “Material U.S. Federal Income Tax Consequences of the Distribution—The Distribution”) due to a breach by us (or any of our subsidiaries) of any covenant or representation made by us in the tax matters arrangement contained in the Shared Services Agreement (the “Tax Matters Arrangement”), we will generally be required to indemnify BBIG for all tax-related losses suffered by BBIG. In addition, we will not control the resolution of any tax contest relating to taxes suffered by BBIG in connection with the Separation and we may not control the resolution of tax contests relating to any other taxes for which we may ultimately have an indemnity obligation under the Tax Matters Arrangement. In the event that BBIG suffers tax-related losses in connection with the Separation that must be indemnified by us under the Tax Matters Arrangement, the indemnification liability could have a material adverse effect on our business, operating results, and financial condition.

 

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We will be subject to significant restrictions on our actions following the Separation in order to avoid triggering significant tax-related liabilities.

 

The Tax Matters Arrangement generally will prohibit us from taking certain actions that could cause the Transfer and the Distribution to fail to qualify as tax-free transactions, including the following:

 

  during the two-year period following the Distribution Date (or otherwise pursuant to a “plan” within the meaning of Section 355(e) of the Code), we may not cause or permit certain business combinations or transactions to occur;

 

  during the two-year period following the Distribution Date, we may not discontinue the active conduct of our business (within the meaning of Section 355(b)(2) of the Code);

 

  during the two-year period following the Distribution Date, we may not liquidate or merge, consolidate, or amalgamate with any other person;

 

  during the two-year period following the Distribution Date, we may not sell or otherwise dispose of more than 30% of our consolidated gross assets;

 

  during the two-year period following the Distribution Date, we may not purchase any of our common stock, other than pursuant to certain open-market repurchases of less than 20% of our common stock (in the aggregate);

 

  during the two-year period following the Distribution Date, we may not amend our Certificate of Incorporation (or other organizational documents) or take any other action affecting the voting rights of our common stock; and

 

  more generally, we may not take any action that could reasonably be expected to cause the Transfer and the Distribution to fail to qualify as tax-free transactions for U.S. federal income tax purposes.

 

If we take any of the actions above and such actions result in tax-related losses to BBIG, we generally will be required to indemnify BBIG for such tax-related losses under the Tax Matters Arrangement. See “The Separation—Agreements with BBIG.” Due to these restrictions and indemnification obligations under the Tax Matters Arrangement, we may be limited in our ability to pursue strategic transactions, equity or convertible debt financings, or other transactions that may otherwise be in our best interests. In addition, our potential indemnity obligation to BBIG might discourage, delay, or prevent a change of control that our stockholders may consider favorable.

 

Our accounting and other management systems and resources may not be robust enough to meet the financial reporting and other requirements to which we will be subject following the Separation.

 

Prior to the Separation, our financial results were included within the consolidated results of BBIG, and we were not directly subject to reporting and other requirements of the Exchange Act. These and other obligations will place significant demands on our management, administrative, and operational resources, including accounting and information technology resources. To comply with these requirements, we anticipate that we will need to duplicate information technology infrastructure; implement additional financial and management controls, reporting systems, and procedures; and hire additional accounting, finance, tax, treasury, and information technology staff. If we are unable to do this in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to independent public companies could be impaired and our business could be harmed.

 

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THE SEPARATION

 

General

 

BBIG intends to distribute 100% of the shares of our common stock held by BBIG to holders of shares of BBIG common stock, subject to certain conditions. The Distribution of our common stock is expected to take place on [ • ], the Distribution Date. On the Distribution Date, each holder of BBIG common stock will receive one (1) share of TYDE common stock for every ten (1) shares of BBIG common stock held at the close of business on the Record Date, as described below. You will not be required to make any payment, surrender or exchange your BBIG common stock or take any other action to receive your shares of TYDE common stock to which you are entitled on the Distribution Date.

 

The Distribution of our common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. We cannot provide any assurances that the Distribution will be completed. For a more detailed description of these conditions, see the section “The Separation—Conditions to the Distribution.” We cannot provide any assurances that BBIG will complete the Separation.

 

Reasons for the Separation

 

The BBIG Board of Directors believes that separating the Spin-Off Businesses from the remainder of BBIG is in the best interests of BBIG and its stockholders for a number of reasons, including:

 

Distinct Focus. Each company will benefit from a distinct strategic and management focus on its specific operational and growth priorities. BBIG is expected to continue operations of its media focused business. TYDE will operate the Spin-Off Businesses. Because each company will have smaller portfolio of businesses, management of each company is expected to better allocate time and resources to identifying and executing operational and growth strategies.

 

Differentiated Investment Opportunities. Each company will offer differentiated and compelling investment opportunities based on its particular operating and financial model, allowing it to more closely align with its natural investor type. TYDE seeks to attract investors looking to invest in companies bringing Web3, and blockchain technology generally, into consumer facing industries, such as music and art, while also maintaining the stability that comes with an established business, such as the Packaging Business. Whereas BBIG will likely appeal to investors looking to invest in a global media business.

 

Optimized Balance Sheet and Capital Allocation Priorities. Each company will operate with a capital structure and capital deployment strategy tailored to its specific business model and growth strategies without having to compete with the other for investment capital. TYDE expects to monitor the performance and opportunities of the Spin-Off Businesses, and allocate capital in a manner designed to grow TYDE. BBIG is expected to continue allocating resources towards its media business.

 

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Direct Access to Capital Markets. Each company will have its own equity structure that will afford it direct access to the capital markets and allow it to capitalize on its unique growth opportunities appropriate to its business.

 

Alignment of Incentives with Performance Objectives. Each company will be able to offer incentive compensation arrangements for employees that are more directly tied to the performance of its business and may enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives. TYDE expects to incentive management and employees with both cash and equity compensation upon attaining earnings, market capitalization, and user count goals. By tailoring management’s and employees’ incentive to the performance of the Spin-Off Businesses, rather than the businesses that remain with BBIG, the Company hopes to advance the Spin-Off Businesses faster than should they remain with BBIG.

 

Incremental Stockholder Value. Each company will benefit from the investment community’s ability to value its businesses independently within the context of its particular industry with the anticipation that, over time, the aggregate market value of the companies will be higher, on a fully distributed basis and assuming the same market conditions, than if BBIG were to remain under its current configuration.

 

BBIG’s Board of Directors also considered potentially negative factors in evaluating the Separation, including risks relating to the creation of a new public company, possible increased administrative costs and one-time separation costs, but concluded that the potential benefits of the Separation outweighed these factors. The anticipated benefits of the spin-off are based on a number of assumptions, and there can be no assurance that such benefits will materialize to the extent anticipated, or at all. In the event the spin-off does not result in such benefits, the costs associated with the spin-off could have an adverse effect on each company individually and in the aggregate. For more information, see the sections entitled “Risk Factors” included elsewhere in this information statement.

 

Formation of a Holding Company Prior to the Distribution

 

In connection with and prior to the Separation, BBIG formed TYDE as a Nevada Corporation, and expects to convert it to a Delaware corporation prior to the Distribution, for the purpose of transferring to TYDE assets and liabilities, including the entities holding assets and liabilities, associated with the Spin-Off Businesses.

 

The Number of Shares You Will Receive

 

For every ten (10) shares of BBIG common stock you own as of the close of business on the Record Date, you will receive one (1) share of our common stock on the Distribution Date.

 

Treatment of Fractional Shares

 

Nevada Agency & Transfer Company, acting as the Distribution Agent, will not distribute any fractional shares of our common stock to BBIG stockholders. As soon as practicable on or after the Distribution Date, the Distribution Agent will, instead, aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing prices, and distribute the net cash proceeds from the sales, net of brokerage fees and commissions, transfer taxes, and other costs, and after making appropriate deductions of the amounts required to be withheld for U.S. federal income tax purposes, if any, pro rata to each stockholder that would otherwise have been entitled to receive a fractional share in connection with the Distribution. The Distribution Agent will determine when, how, through which broker-dealers, and at what prices to sell the aggregated fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any minimum sale price for the fractional shares or to any interest on the amounts of payments made in lieu of fractional shares. The receipt of cash in lieu of fractional shares generally will be taxable to the recipient stockholders for U.S. federal income tax purposes as described under “Material U.S. Federal Income Tax Consequences of the Distribution—The Distribution.”

 

When and How You Will Receive the Distribution of TYDE Shares

 

BBIG will distribute the shares of our common stock on [●], 2022, the Distribution Date, to holders of record as of the close of business on the Record Date. The Distribution is expected to be completed following the Nasdaq market closing on the Distribution Date. BBIG’s transfer agent and registrar, Nevada Agency & Transfer Company, will serve as transfer agent and registrar for our common stock and as Distribution Agent in connection with the Distribution.

 

If you own BBIG common stock as of the close of business on the Record Date, the shares of our common stock that you are entitled to receive in connection with the Distribution will be issued electronically, as of the Distribution Date, to your account as follows:

 

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  Registered Stockholders. If you own your shares of BBIG stock directly, either in book-entry form through an account at Nevada Agency & Transfer Company and/or if you hold paper stock certificates, you will receive your shares of our common stock by way of direct registration in book-entry form. Registration in book-entry form is a method of recording stock ownership when no physical paper share certificates are distributed to stockholders, as is the case in connection with the Distribution.

 

  On or shortly following the Distribution Date, the Distribution Agent will mail to you a direct registration account statement that reflects the number of shares of our common stock that have been registered in book-entry form in your name. Stockholders having any questions concerning the mechanics of having shares of our common stock registered in book-entry form may contact Nevada Agency & Transfer Company at the address set forth under “Questions and Answers About the Separation” in this information statement.  

 

Beneficial Stockholders. Many BBIG stockholders hold their shares of BBIG common stock beneficially through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the stock in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your BBIG common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account with the shares of our common stock that you are entitled to receive in connection with the Distribution. If you have any questions concerning the mechanics of having shares of common stock held in “street name,” we encourage you to contact your bank or brokerage firm.

 

Treatment of Outstanding Equity Compensation Awards

 

The Shared Services Agreement will provide for the treatment of outstanding equity awards of BBIG in connection with the Separation. The following discussion describes the expected treatment of BBIG equity awards in connection with the separation. We expect that the treatment described below would become effective as of the Distribution Date.

 

Holders of BBIG awards whose post-Separation employer is TYDE will receive as a replacement of the BBIG awards, an identical award with respect to approximately 1/10 of a share of our common stock for each share of BBIG common stock underlying the BBIG award, such that the resulting TYDE award will have an intrinsic value immediately following the consummation of the Distribution equal to the intrinsic value of the existing BBIG award immediately prior to the consummation of the Distribution, taking into account any necessary adjustments to the exercise price of the new awards, if applicable, to maintain such intrinsic value. To the extent the existing BBIG award is subject to vesting based upon continued service with BBIG, the new awards will also remain subject to the same vesting conditions based upon continued employment with the holder’s post-Separation employer. In addition, to the extent the existing BBIG award is subject to the achievement of certain BBIG performance-based target goals, appropriate adjustments will be made to such target goals and incorporated into the new awards to reflect equivalent TYDE performance-based target goals.

 

There are currently no unvested equity awards held by employees of BBIG that are remaining with BBIG after the Separation.

 

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Fractional Interests

 

To the extent any adjustments to be made to outstanding BBIG awards result in fractional share interests, the fractional interests will be rounded down to the nearest whole share, and we will make a cash payment to our respective employees and/or directors in lieu of such fractional interests.

 

Results of the Separation

 

After the Separation, we will be an independent, publicly traded company that directly or indirectly holds the assets and legal entities, subject to any related liabilities, associated with the Spin-Off Businesses previously conducted by BBIG. Immediately following the Separation, we expect to have approximately 400 stockholders of record. Based on the number of registered stockholders of BBIG common stock on [●], 2022, applying the distribution ratio of one (1) share of our common stock for every ten (10) shares of BBIG common stock, and adding the 1,472,399 shares of our common stock issuable under the terms of a BBIG warrant upon the Distribution, we expect to have approximately 16,484,201 shares of our common stock outstanding following the Separation. The actual number of shares to be distributed will be determined on the Record Date.

 

Incurrence of Debt

 

In connection with the Separation, we may incur debt in the ordinary course of business.

 

Regulatory Approvals

 

We must complete the necessary registration under the federal securities laws of our common stock to be issued in connection with the Distribution. We must also complete the applicable listing requirements on Nasdaq for such shares. Other than these requirements, we do not believe that any other material governmental or regulatory filings or approvals will be necessary to consummate the Distribution.

 

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Appraisal Rights

 

No BBIG stockholder will have any appraisal rights in connection with the Separation.

 

Listing and Trading of Our Common Stock

 

As of the date of this information statement, there is no public market for our common stock. We have applied to have our common stock listed on Nasdaq under the ticker symbol “TYDE.”

 

Trading Between Record Date and Distribution Date

 

Beginning on the Record Date and continuing up to and including the Distribution Date, we expect that there will be two markets in BBIG common stock: a “regular-way” market and an “ex-distribution” market. Shares of BBIG common stock that trade on the “regular-way” market will trade with an entitlement to receive shares of our common stock in connection with the Distribution. Shares of BBIG common stock that trade on the “ex-distribution” market will trade without an entitlement to receive shares of our common stock in the Distribution. Therefore, if you sell shares of BBIG common stock on the “regular-way” market after the close of business on the Record Date and up to and including through the Distribution Date, you will be selling your right to receive shares of our common stock in connection with the Distribution. If you own shares of BBIG common stock as of the close of business on the Record Date and sell those shares on the “ex-distribution” market, up to and including through the Distribution Date, you will still receive the shares of our common stock that you would be entitled to receive in respect of your ownership, as of the Record Date, of the shares of BBIG common stock that you sold.

 

Furthermore, beginning on the Record Date and continuing up to and including the Distribution Date, we expect there will be a “when-issued” market in our common stock. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for shares of our common stock that will be distributed to BBIG stockholders on the Distribution Date. If you own shares of BBIG common stock as of the close of business on the Record Date, you would be entitled to receive shares of our common stock in connection with the Distribution. You may trade this entitlement to receive shares of our common stock, without trading the shares of BBIG common stock you own, in the “when-issued” market. On the first trading day following the Distribution Date, we expect “when-issued” trading with respect to our common stock will end and “regular-way” trading in our common stock will begin.

 

Conditions to the Distribution

 

We expect the Distribution will be effective on [●], 2022, the Distribution Date, provided that, among other conditions described in the Separation and Distribution Agreement, the following conditions will have been satisfied or waived by BBIG in its sole discretion:

 

  TYDE will hold all of the assets comprising the Spin-Off Businesses.
     
 

The SEC will have declared effective our registration statement on Form 10, of which this information statement is a part, under the Exchange Act; and no stop order suspending the effectiveness of our registration statement on Form 10 will be in effect.

 
  BBIG will have received an opinion of Seward & Kissel LLP, tax counsel to BBIG, to the effect that, among other things, the Distribution, together with certain related transactions, should qualify as tax-free for United States federal income tax purposes under Sections 368(a)(1)(D) and 355 of the Internal Revenue Code (the “Code”).
     
  Nasdaq will have approved the listing of TYDE common stock, subject to official notice of issuance.
     
 

No events or developments shall have occurred or exist that, in the sole and absolute judgment of the BBIG Board of Directors, make it inadvisable to effect the Distribution or would result in the Distribution and related transactions not being in the best interest of BBIG or its stockholders.

 

The fulfillment of these conditions will not create any obligations on BBIG’s part to effect the Separation, and the BBIG Board of Directors has reserved the right, in its sole discretion, to abandon, modify, or change the terms of the Separation, including by accelerating or delaying the timing of the consummation of all or part of the Distribution, at any time prior to the Distribution Date.

 

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Agreements with BBIG

 

In connection with the Separation, we will enter into a Separation and Distribution Agreement and several other agreements with BBIG to effect the Separation and provide a framework for our relationship with BBIG after the Separation. These agreements will provide for the allocation between us and our subsidiaries, on the one hand, and BBIG and its subsidiaries, on the other hand, of the assets, liabilities, legal entities, and obligations associated with the Spin-Off Businesses, on the one hand, and the other current BBIG businesses, on the other hand, and will govern the relationship between our company and our subsidiaries, on the one hand, and BBIG and its subsidiaries, on the other hand, subsequent to the Separation (including with respect to transition services, employee matters, intellectual property matters, tax matters, and certain other commercial relationships).

 

In addition to the Separation and Distribution Agreement (which will contain many of the key provisions related to our Separation from BBIG and the Distribution of our shares of common stock to BBIG stockholders), we will also enter into a Shared Services Agreement and certain commercial agreements.

 

The forms of the principal agreements described below have been filed as exhibits to the registration statement of which this information statement forms a part. The following descriptions of these agreements are summaries of the material terms of these agreements.

 

Separation and Distribution Agreement

 

The Separation and Distribution Agreement will govern the overall terms of the Separation. Generally, the Separation and Distribution Agreement will include BBIG’s and our agreements relating to the internal restructuring steps to be taken to complete the Separation, including the assets, legal entities, and rights to be transferred, liabilities to be assumed, and related matters.

 

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Subject to the receipt of required governmental and other consents and approvals and the satisfaction of other closing conditions, in order to accomplish the Separation, the Separation and Distribution Agreement will provide, as applicable, for BBIG and us to transfer specified assets between the companies that will operate the Spin-Off Businesses, on the one hand, and BBIG’s other current businesses, on the other hand, after the Distribution Date. The determination of the assets to be transferred between the companies will be made by BBIG in its sole discretion. The Separation and Distribution Agreement will require BBIG and us to use reasonable efforts to obtain consents, approvals, and amendments required to assign the assets, legal entities, and liabilities that are to be transferred pursuant to the Separation and Distribution Agreement.

 

Unless otherwise provided in the Separation and Distribution Agreement or any of the related ancillary agreements, all assets will be transferred on an “as is, where is” basis. Generally, if the transfer of any assets or any claim or right or benefit arising thereunder requires a consent that will not be obtained before the Distribution, or if the transfer or assignment of any such asset or such claim or right or benefit arising thereunder would be ineffective or would adversely affect the rights of the transferor thereunder so that the intended transferee would not in fact receive all such rights, the party retaining any asset that otherwise would have been transferred will hold such asset in trust for the use and benefit of the party entitled thereto and retain such liability for the account of the party by whom such liability is to be assumed, and take such other action as may be reasonably requested by the party to which such asset is to be transferred, or by whom such liability is to be assumed, as the case may be, in order to place such party, insofar as reasonably possible, in the same position as would have existed had such asset or liability been transferred prior to the consummation of the Distribution.

 

The Separation and Distribution Agreement will specify those conditions that must be satisfied or waived by BBIG prior to the completion of the Separation, which are described further in “—Conditions to the Distribution.” In addition, BBIG will have the right to determine the date and terms of the Separation and will have the right, at any time until completion of the Distribution, to determine to abandon or modify the Distribution and to terminate the Separation and Distribution Agreement.

 

In addition, the Separation and Distribution Agreement will govern the treatment of indemnification, insurance, and litigation responsibility and management of the Spin-Off Businesses, on the one hand, and BBIG’s other current businesses, on the other hand, after the Distribution Date. Generally, the Separation and Distribution Agreement will provide for uncapped cross-indemnities primarily designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of BBIG’s other current businesses with BBIG, in either case after applicable insurance coverage (which generally are occurrence policies) intended to cover such obligations and liabilities and whether incurred prior to, on, or after the Distribution Date. We and BBIG have each agreed to indemnify the other for any liabilities caused by a material misstatement or omission in materials supplied by one of us to the other for inclusion in this information statement regarding the business, operations, financial results, stockholder communications, risks, management, management compensation levels, and stock ownership of the applicable company. The Separation and Distribution Agreement will also establish procedures for handling claims subject to indemnification and related matters.

 

Tax Matters Arrangement

 

In connection with the Separation, we and BBIG will enter into a Tax Matters Arrangement that will contain certain tax matters arrangements (the “Tax Matters Arrangement”) and will govern the parties’ respective rights, responsibilities, and obligations with respect to taxes, including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of the failure of the Transfer and the Distribution to qualify for tax-free treatment for U.S. federal income tax purposes. The Tax Matters Arrangement will also set forth the respective obligations of the parties with respect to the filing of tax returns, the administration of tax contests, and assistance and cooperation on tax matters.

 

In general, the Tax Matters Arrangement will govern the rights and obligations that we and BBIG will have after the Separation with respect to taxes for both pre- and post-closing periods. Under the Tax Matters Arrangement, we generally will be responsible for (i) any of our taxes for all periods prior to and after the Distribution and (ii) any taxes of BBIG for periods prior to the Distribution to the extent attributable to the Spin-Off Businesses. BBIG generally will be responsible for any of the taxes of BBIG other than taxes for which we are responsible.

 

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The Tax Matters Arrangement will further provide as follows:

 

  We will generally indemnify BBIG against (i) taxes arising in the ordinary course of business for which we are responsible under the Tax Matters Arrangement, (ii) any liability or damage resulting from a breach by us or any of our affiliates of a covenant or representation made in the Tax Matters Arrangement, and (iii) any event (or series of events) involving our capital stock that, in either case, would result in the failure of the Transfer and the Distribution to qualify for tax-free treatment for U.S. federal income tax purposes.

 

  BBIG will indemnify us against any taxes of BBIG other than taxes for which we are responsible.

 

In addition to the indemnification obligations described above, the indemnifying party will generally be required to indemnify the indemnified party against any interest, penalties, additions to tax, losses, assessments, settlements, or judgments arising out of or incident to the event giving rise to the indemnification obligation, along with costs incurred in any related contest or proceeding.

 

The Tax Matters Arrangement also generally will prohibit us and our affiliates from taking certain actions that could cause the Transfer and the Distribution to fail to qualify for their intended tax treatment, including the following:

 

  during the two-year period following the Distribution Date (or otherwise pursuant to a “plan” within the meaning of Section 355(e) of the Code), we may not cause or permit certain business combinations or transactions to occur;

 

  during the two-year period following the Distribution Date, we may not discontinue the active conduct of our business (within the meaning of Section 355(b)(2) of the Code);

 

  during the two-year period following the Distribution Date, we may not liquidate or merge, consolidate, or amalgamate with any other person;

 

  during the two-year period following the Distribution Date, we may not sell or otherwise dispose of more than 30% of our consolidated gross assets;

 

  during the two-year period following the Distribution Date, we may not purchase any of our common stock, other than pursuant to certain open-market repurchases of less than 20% of our common stock (in the aggregate);

 

  during the two-year period following the Distribution Date, we may not amend our Certificate of Incorporation (or other organizational documents) or take any other action affecting the voting rights of our common stock; and

 

  more generally, we may not take any action that could reasonably be expected to cause the Transfer and the Distribution and to fail to qualify as tax-free transactions for U.S. federal income tax purposes.

 

In the event that the Transfer and the Distribution fail to qualify for their intended tax treatment, in whole or in part, and BBIG is subject to tax as a result of such failure, the Tax Matters Arrangement will determine whether BBIG must be indemnified for any such tax by us. As a general matter, under the terms of the Tax Matters Arrangement (as described above), we are required to indemnify BBIG for any tax-related losses in connection with the Transfer and the Distribution as a result of any action by us or any of our subsidiaries following the Separation. Therefore, in the event that the Transfer or the Distribution fails to qualify for its intended tax treatment due to any action by us or any of our subsidiaries (including the prohibited actions described above), we will generally be required to indemnify BBIG for the resulting taxes.

 

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Shared Services Agreement

 

The Shared Services Agreement will set forth the terms on which BBIG will provide to us and we will provide to BBIG on a transitional basis, certain services or functions that the Spin-Off Businesses and BBIG’s other businesses historically have shared. Shared services will include various information technology, finance, human resources, compliance, legal, security, and other support services. The Shared Services Agreement will provide for the provision of the specified transition services, generally for a period of up to two years following the Distribution Date. Compensation for transition services will be determined using an internal cost allocation methodology based on fully burdened cost such that the party providing the services will have neither a profit nor a loss from the provision of such services as calculated under GAAP.

 

Employee Matters Arrangement

 

In connection with the Separation, we and BBIG will enter into an Employee Matters Agreement that will contain certain employee matters arrangements (the “Employee Matters Arrangement”) that will govern each company’s respective compensation and employee benefit obligations with respect to current and former employees, directors, and consultants. The Employee Matters Arrangement will set forth general principles relating to employee matters in connection with the Separation, including the assignment of employees and consultants, the sharing of employee and consultant information, the assumption and retention of employment related assets and liabilities, expense reimbursements, workers’ compensation coverage and liabilities, leaves of absence, the provision of comparable employee benefits, the duplication and/or acceleration of certain employee benefits, and employee service credit (including those relating to time of service, salary, benefits, vacations, and sick leaves).

 

The Employee Matters Arrangement generally will allocate liabilities and responsibilities relating to compensation and employee benefit plans and programs with BBIG retaining liabilities (both pre- and post-Distribution) and responsibilities with respect to BBIG employees, directors, and consultants who will remain with BBIG and our company assuming liabilities (both pre- and post-Distribution) and responsibilities with respect to participants who will transfer to our company in connection with the Separation. The Employee Matters Arrangement will require us to adopt various plans and programs that cover our employees in substitution of coverage they have had under BBIG plans and programs, including an equity incentive plan, a 401(k) plan, a group welfare plan, and a disability plan.

 

The Employee Matters Arrangement will also provide that (i) the Distribution does not constitute a change in control under BBIG’s employee benefit plans, programs, agreements, or arrangements and (ii) the Distribution and the assignment, transfer, or continuation of the employment or service of employees, directors, and/or consultants with another entity will not constitute a severance event under applicable BBIG employee benefit plans, programs, agreements, or arrangements.

 

42

 

 

Transferability of Shares of Our Common Stock

 

The shares of our common stock that you will receive in connection with the Distribution will be freely transferable, unless you are considered an “affiliate” of ours pursuant to Rule 144 under the Securities Act. Persons that can be considered our affiliates after the Separation generally include individuals or entities that directly, or indirectly through one or more intermediaries, control, are controlled by, or are under common control with us, and may include certain of our officers and directors. In addition, individuals who are affiliates of BBIG on the Distribution Date may be deemed to be affiliates of ours. We estimate that our directors and executive officers, who may be considered “affiliates” for purposes of Rule 144, will beneficially own approximately 441,250 shares of our common stock immediately following the Separation. See “Security Ownership of Certain Beneficial Owners and Management” included elsewhere in this information statement. Our affiliates may sell shares of our common stock received in connection with the Distribution only:

 

  under a registration statement that the SEC has declared effective under the Securities Act; or

 

  under an exemption from registration under the Securities Act, such as the exemption afforded by Rule 144.

 

In general, under Rule 144 as currently in effect, an affiliate will be entitled to sell, within any three-month period, a number of shares of our common stock that does not exceed the greater of the following:

 

  one percent of our common stock then outstanding; or

 

  the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 for the sale.

 

Rule 144 also includes notice requirements and restrictions governing the manner of sale for sales by our affiliates. Sales may not be made under Rule 144 unless certain information about us is publicly available.

 

Reason for Furnishing this Information Statement

 

This information statement is being furnished solely to provide information to BBIG stockholders who are entitled to receive shares of our common stock in connection with the Distribution. The information statement is not, and is not to be construed as, an inducement or encouragement to buy, hold, or sell any of our securities. We believe the information contained in this information statement is accurate as of the date set forth on the cover. Changes may occur after that date and neither BBIG nor we undertake any obligation to update such information except in the normal course of our respective public disclosure obligations.

 

DIVIDEND POLICY

 

We currently intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any future determination to pay dividends on our common stock will be made at the discretion of our Board of Directors and will depend on various factors, including applicable laws, our results of operations, financial condition, future prospects, the terms of our outstanding indebtedness, and any other factors deemed relevant by our Board of Directors.

 

CAPITALIZATION

 

The following table sets forth our cash and equivalents and our capitalization as of September 30, 2021, on a historical and pro forma basis to give effect to the Separation.

 

The pro forma adjustments are based upon available information and assumptions that we believe are reasonable; however, such adjustments are subject to change based on the finalization of the terms of the Separation and the agreements that define our relationship with BBIG after the completion of the Separation. In addition, such adjustments are estimates and may not prove to be accurate.

 

You should read the information in the following table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Combined Financial Statements,” and our historical financial statements and the related notes included elsewhere in this information statement.

 

We are providing the capitalization table for information purposes only. The capitalization table below may not reflect the capitalization or financial condition that would have resulted had we been operating as an independent, publicly traded company on September 30, 2021, and is not necessarily indicative of our future capitalization or financial condition.

 

   As of September 30, 2021 
Capitalization:  Historical    Pro Forma  
Cash and cash equivalents1   $ 658,023    $ 2,000,000  
Shareholders’ equity   -      
Parent’s net investment    2,851,587      -  
Common stock2    50,000     16,484  
Additional paid in capital   -     (16,484 )
Total capitalization  $ 3,559,610    $ 2,000,000  

 

1) Assumes $2,000,000 of cash provided by the Parent upon the Distribution.
2) The number of TYDE shares of 16,484,201 expected to be outstanding upon the Distribution multiplied by the par value of $.001. The number of TYDE shares expected to be outstanding includes 15,011,802 anticipated shares to be issued upon the Distribution to the shareholders of Vinco Ventures, Inc. and 1,472,399 anticipated shares to be issued upon the Distribution to the certain warrants holders of Vinco Ventures, Inc.

 

The capitalization table above assumes that there will be 16,484,201 shares of TYDE common stock outstanding upon consummation of the Separation and excludes 10,115,454 shares of common stock issuable upon the exercise of warrants the Company anticipates issuing upon the consummation of an Amendment Agreement among the Company, BBIG and an accredited investor.

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

 

The unaudited pro forma combined balance sheets as of September 30, 2021 and the related unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2021 and the year ended December 31, 2020, are presented as if the Separation had occurred on January 1, 2020, and are based upon the unaudited condensed statements of operations of the Company for the nine months ended September 30, 2021 and the unaudited condensed statements of operations of Ferguson Containers, Inc. (the Packaging Business) for the nine months ended September 30, 2021.

 

The financial statements of the Company, which includes Ferguson Containers, Inc., Cryptyde, Inc., Cryptyde Shared Services, LLC, CW Machines, LLC, and BlockHiro, LLC, have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to events that are directly attributable to the acquisition, are factually supportable and are expected to have a continuing impact on the combined company, however, CW Machines, LLC and BlockHiro, LLC were formed subsequent to September 30, 2021, and Cryptyde, Inc and Cryptyde Shared Services, LLC, had no activity as of September 30, 2021. The unaudited pro forma condensed combined financial statements have been presented for informational purposes only. The unaudited pro forma condensed combined financial statements are not necessarily indicative of what the combined company’s financial position or results of operations actually would have been had the acquisition been completed as of the dates indicated. In addition, the unaudited pro forma condensed combined financial statements do not purport to project the future financial position or operating results of the combined company.

 

The unaudited pro forma condensed combined financial statements should be read in conjunction with the audited financial statements of Ferguson Containers, Inc. for the year ended December 31, 2020, and the unaudited condensed statement of operations of Ferguson Containers, Inc. for the nine months ended September 30, 2021. The unaudited pro forma condensed combined financial statements do not reflect any cost savings from operating synergies or revenue enhancements that the combined company may achieve as a result of the acquisition and the effects of the foregoing items could, individually or in the aggregate, materially impact the unaudited pro forma condensed combined financial statements.

 

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CRYPTYDE, INC., AND SUBSIDIARIES 

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

September 30, 2021

 
    Ferguson Containers, Inc.     Cryptyde, Inc.     Cryptyde Shared Services, LLC     CW Machines, LLC.     BlockHiro, LLC     Pro Forma Adjustments    

Combined

Cryptyde, Inc.
 
                                                      
Assets                                                        
Current assets:                                                               
Cash and cash equivalents   $ 658,023     $ -     $ -     $                  -     $       $ 1,341,977 (1)   $ 2,000,000  
Accounts receivable     967,296       -       -       -               -       967,296  
Inventory     40,438       -       -       -               -       40,438  
Prepaid expenses and other current assets     37,625       -       -       -               -       37,625  
Total current assets     1,703,382       -       -       -               1,341,977       3,045,359  
Property and equipment, net     569,082       -       -       -               -       569,082  
Intangible assets, net     -       -       -       -               -       -  
Due from Parent     1,084,497       -       -       -               (1,084,497 )(2)     -  
Total assets   $ 3,356,961     $ -     $ -     $ -     $       $ 257,480     $ 3,614,441  
                      -       -                          
Liabilities and stockholders’ equity                                                        
Current liabilities:                                                        
Accounts payable   $ 41,460     $ -     $ -     $ -     $       $ -     $ 41,460  
Accrued expenses and other current liabilities     19,231       -       -       -               -       19,231  
Income tax payable     334,397       -       -       -               -       334,397  
Current portion of notes payable     15,357       -       -       -               -       15,357  
Total current liabilities     410,445       -       -       -               -       410,445  
                      -       -                          
Notes payable, net of current portion     16,062       -       -       -               -       16,062  
Deferred tax liabilities     82,104       -       -       -               -       82,104  
Due to Parent     -       -       -       -               -       -  
Total liabilities   $ 508,611     $ -     $ -     $ -     $       $ -     $ 508,611  
Stockholders’ equity                                                        
Common stock, no par value, 400 shares authorized as of September 30, 2021   $ 50,000     $ -     $ -     $ -     $       $ (33,316 )(3)   $ 16,684  
Additional paid-in-capital     -       -       -       -               290,796 (3)     290,796  
Retained earnings (accumulated deficit)     2,798,350       -       -       -                     2,798,350  
Total stockholders’ equity     2,848,350       -       -       -               257,480       3,105,830  
Total liabilities and stockholders’ equity   $ 3,356,961     $ -     $ -     $ -     $       $ 257,480     $ 3,614,441  

 

The accompanying notes are an integral part of these financial statements.

 

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CRYPTYDE, INC., AND SUBSIDIARIES

 UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS

For the Nine Months Ended September 30, 2021

 

    Ferguson Containers, Inc.     Cryptyde, Inc.     Cryptyde Shared Services, LLC     CW Machines, LLC.     BlockHiro, LLC     Pro Forma Adjustments     Cryptyde, Inc.  
Revenues, net   $ 5,767,328     $ -     $ -     $ -     $              $ -     $ 5,767,328  
Cost of revenues     4,119,953             -             -             -               -       4,119,953  
Gross profit     1,647,375       -       -       -               -       1,647,375  
                                                         
Operating expenses:                                                        
Selling, general and administrative     1,345,691       -       -       -               410,000 (4)(5)     1,755,691  
Operating income     301,684       -       -       -               (410,000 )     (108,316 )
                                                         
Other (expense) income:                                                        
Rental income     71,543       -       -       -               (71,543 )(6)     -  
Interest expense     (47,327 )     -       -       -               -       (47,327 )
Other income     475,419       -       -       -               (475,419 )(6)     -  
Total other income, net     499,635       -       -       -               (546,962 )     (47,327 )
Income (loss) before income taxes     801,319       -       -       -               (956,962 )     (155,643 )
Income tax expense     224,400       -       -       -               (224,400 )(7)     -  
Net income (loss)   $ 576,919     $ -     $ -     $ -     $         (732,562 )   $ (155,643 )
Net income (loss) per share:                                                        
Net income (loss) per share – basic     1,442.30       -       -       -                       0.01  
Net income (loss) per share – diluted     1,442.30       -       -       -                       0.01  
Weighted average number of common shares outstanding – basic and diluted     400       -       -       -                       16,484,201  

 

The accompanying notes are an integral part of these financial statements

 

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CRYPTYDE, INC., AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS

For the Year Ended December 31, 2020

 

   Ferguson Containers, Inc.   Cryptyde, Inc.    Cryptyde Shared Services, LLC    CW Machines, LLC.    BlockHiro, LLC     Pro Forma Adjustments     Cryptyde, Inc. 
Revenues, net  $6,719,894   $     -   $      -    $      -    $              $-     $6,719,894 
Cost of revenues   4,691,451    -     -      -             -      4,691,451 
Gross profit   2,028,443    -     -      -             -      2,028,443 
                                             
Operating expenses:                                            
Selling, general and administrative   1,759,117    -     -      -             560,000 (8)(9)    2,319,117 
Operating income (loss)   269,326    -     -      -             (560,000 )    (290,674)
                                        
Other (expense) income:                                            
Rental income   102,815    -     -      -             

(102,815

)(10)     -  
Interest expense   (112,295)   -     -      -             -      (112,295)
Total other (expense)   (9,480)   -     -      -             

(102,815

    (112,295 )
Income (loss) before income taxes   259,846    -     -      -              (662,815 )     (402,969 )
Income tax expense   67,399    -     -      -             

(67,399

)(11)     -  
Net income (loss)  $192,447   $-   -    $ -             

(595,416

)   $ (402,969 )
Net loss per share:                                            
Net loss per share – basic   481.12          -      -                     (0.02 )
Net loss per share – diluted   481.12          -      -                     (0.02 )
Weighted average number of common shares outstanding – basic and diluted   400          -      -                     16,484,201  

 

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NOTES TO PRO FORMA FINANCIAL STATEMENTS

 

1. BASIS OF PRESENTATION

 

As used herein, the Company refers to Ferguson Containers, Inc., a New Jersey corporation incorporated on September 14, 1966 under the laws of the state of New Jersey, Cryptyde, Inc., a Nevada corporation incorporated on September 21, 2021, Cryptyde Shared Services, LLC, a Nevada limited liability company formed on September 16, 2021, CW Machines, LLC, a Nevada limited liability company formed on October 2, 2021 and BlockHiro, LLC, a Nevada limited liability company formed on November 8, 2021. The unaudited pro forma condensed combined financial statements are based on Ferguson Container, Inc.’s historical financial statements and the newly formed Cryptyde, Inc., Cryptyde Shared Services, LLC, CW Machines, LLC, and BlockHiro, LLC as adjusted to give effect to the Separation, however, CW Machines, LLC and BlockHiro, LLC were formed subsequent to September 30, 2021, and Cryptyde, Inc. and Cryptyde Shared Services, LLC had no activity as of September 30, 2021. The unaudited pro forma combined statements of operations for the nine months ended September 30, 2021, and the year ended December 31, 2020, give effect to the Separation as if it had occurred on January 1, 2020. The unaudited pro forma combined balance sheet as of September 30, 2021, gives effect to the Separation as if it had occurred on January 1, 2020. The Company has historically operated as part of Vinco Ventures, Inc. (“Parent”) and not as a standalone company. Financial statements representing the historical operations of the Packaging Business have been derived from the Parent’s historical accounting records and are presented on a carve-out basis. All revenues and costs as well as assets and liabilities directly associated with the business activity of the Company are included in the financial statements. The financial statements also include allocations of certain general, administrative, sales and marketing expenses and cost of sales from Parent. However, amounts recognized by the Company are not necessarily representative of the amounts that would have been reflected in the financial statements had the Company operated independently of Parent. Parent allocations are discussed further in Note 2. As part of Parent, the Company is dependent upon Parent for a majority of its working capital and financing requirements as the Parent uses a centralized approach to cash management and financing of its operations. Financial transactions relating to the Company are accounted for through the Parent due to/from account. Accordingly, none of Parent’s cash, cash equivalents or debt at the corporate level have been assigned to the Company in the financial statements. All significant transactions between the Company and Parent have been included in the accompanying combined financial statements. Transactions with Parent are reflected in the accompanying Unaudited Pro-Forma Combined Balance Sheets within “Due From Parent and Due To Parent.”

 

2. PRO FORMA ADJUSTMENTS

 

Pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following are corresponding to the footnotes in the above financial statements.

 

Balance Sheet – September 30, 2021

 

  1) Reflects the working capital cash to be provided from Parent upon the Separation.
  2) Reflects the elimination of the due to/from Parent upon the Separation.
  3) Reflects the anticipated shares to be issued upon the Distribution to the shareholders of Vinco Ventures, Inc based on the number of shares outstanding of 150,118,024 as of January 24, 2022, and giving effect to one share of common stock to be received for every ten shares of Vinco Ventures, Inc. common stock. In addition, the number of TYDE shares expected to be outstanding includes 1,472,399 anticipated shares to be issued upon the Distribution to the certain warrants holders of Vinco Ventures, Inc.

 

Statements of Operations – September 30, 2021

 

  4) Reflects the elimination of portion of the management fee for the salaries of the CEO and CFO included below and employees remaining with Vinco Ventures, Inc. of $130,000.
  5) Reflects the anticipated salaries of the CEO, CFO and COO of $450,000 and $90,000 of benefits which have been prorated for the nine months ended September 30, 2021.
  6) Reflects the elimination of income from rental operations and the gain on the sale of the building which is non-recurring.
  7) Reflects the elimination of income taxes due to proforma loss before income taxes after adjustments.

 

Statements of Operations – December 31, 2020

 

  8) Reflects the elimination of portion of the management fee for the salaries of the CEO and CFO included below and employees remaining with Vinco Ventures, Inc. of $160,000.
  9) Reflects the anticipated salaries of the CEO, CFO, and COO of $600,000 and $120,000 of benefits.
  10) Reflects the elimination of income from rental operations which is non-recurring.
  11) Reflects the elimination of income taxes due to proforma loss before income taxes after adjustments.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

As explained above, unless otherwise indicated, the terms “we,” “us,” “our,” “our Company,” and “the Company” refer to Cryptyde, Inc., together with its consolidated subsidiaries. The following discussion and analysis of the Company’s financial condition and results of operations should be read together with the Company’s financial statements and related notes appearing elsewhere in this information statement. Some of the information contained in this discussion and analysis or set forth elsewhere in this information statement, including information with respect to the Company’s plans and strategy for the Company’s business and related financing, includes forward-looking statements involving risks and uncertainties and should be read together with the “Risk Factors” and “Cautionary Note Regarding Forwarding- Looking Statements” sections of this information statement. Such risks and uncertainties could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Overview

 

BBIG plans to spin-off its Packaging Business, Web3 Business, and Bitcoin Mining Services Business. To accomplish this spin-off, BBIG will transfer those businesses to us, then BBIG will distribute all of its equity interest in us, consisting of all of the outstanding shares of our common stock, to BBIG’s stockholders on a pro rata basis (the “Dristribution”). Following the Separation, BBIG will not own any equity interest in us, and we will operate independently from BBIG.

 

Our financial statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of BBIG. Our financial statements reflect our financial position, results of operations and cash flows as we were historically managed, in conformity with GAAP. Our financial statements include certain assets and liabilities that have historically been held at the BBIG corporate level but are specifically identifiable or otherwise attributable to us.

 

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All intercompany transactions between us and BBIG have been included in our financial statements and are considered to be settled in our consolidated financial statements at the time the Separation becomes effective. The total net effect of the settlement of these intercompany transactions is reflected in our unaudited pro forma combined balance sheets as “Due to/from Parent.”

 

The historical costs and expenses reflected in our financial statements for Ferguson Containers, Inc. include an allocation for certain corporate shared service functions historically provided by BBIG including executive oversight, accounting, treasury, tax, legal, human resources, occupancy, procurement, information technology and other shared services. These expenses have been allocated to us on the basis of direct usage when identifiable, with the remainder allocated on a pro rata basis based on sales, headcount, tangible assets or other measures considered to be a reasonable reflection of the historical utilization levels of these services.

 

Our management believes the assumptions underlying our Ferguson Containers, Inc. financial statements, including the assumptions regarding the allocation of general corporate expenses from BBIG are reasonable. Nevertheless, our financial statements may not include all of the actual expenses that would have been incurred had we operated as a stand-alone company during the periods presented and may not reflect what our actual results of operations, financial position and cash flows would have been if we had operated as a stand-alone company during the periods presented. Actual costs that would have been incurred if we had operated as a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure. Following the Separation, we will perform these functions using our own resources or purchased services. Upon execution of a transition Shared Services Agreement, we expect some of these functions will continue to be provided by BBIG.

 

TYDE is comprised of the Packaging Business, the Web3 Business, and the Bitcoin Mining Services Business. The Packaging Business includes Ferguson Containers, Inc. and has been operating for over 50 years. The Bitcoin Mining Services Business is a joint venture through CW Machines, LLC and began operating in October 2021. The joint venture is expected to be accounted for as a variable interest entity and will be fully consolidated with Cryptyde, Inc. The Web3 business expects to begin offering Web3 products in 2022.

 

The Packaging Business – Ferguson Containers, Inc.

 

Ferguson Containers, Inc. manufactures and sells custom packaging for a variety of products. In our experience, packaging has the capability to “tell” the products’ story, generating increased product awareness, promote brand image, and drive unit growth. Senior management has more than 100 years of combined experience marketing, producing and delivering packaging materials. A hallmark of our operation is our quick production cycle. We can often begin a production run within minutes of receipt of an order. Many of our products are manufactured from 100% post-consumer recycled material. When production is complete, we typically ship the product using our own trucks rather than relying on a common carrier. Ferguson Containers, Inc. does not have long-term agreements with its customers, and instead manufactures and sells its packaging products subject to purchase orders from its customers.

 

The Web3 Business – BlockHiro, LLC

 

BlockHiro, LLC, a Nevada limited liability company was formed on November 8, 2021, was formed to hold the Web3 Business. The Web3 Business plans to use decentralized blockchain technology in established consumer facing industries such as video games, music, and art. TYDE intends to finalize a digital coin minting platform in 2022. TYDE believes its digital coin minting platform will enable TYDE to, together with partners and clients, quickly and efficiently create digital coins for use with projects in established consumer facing industries.

 

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Bitcoin Mining Services Business – CW Machines, LLC

 

CW Machines, LLC, a Nevada limited liability company formed on October 2, 2021, was formed to hold the Bitcoin Mining Services Business. The Bitcoin Mining Services Business, through a joint venture, CW Machines, LLC, with Wattum Management Inc. and BBA Technology Inc., is focused on bringing Bitcoin mining to the consumer level by offering Bitcoin mining equipment and co-location services.

 

Key Components of our Results of Operations

 

Revenues

 

We sell corrugated custom packaging to a wide array of customers. In addition, we will generate revenues from the sales of Bitcoin mining equipment offered through CW Machines, LLC and Web3 Products and services offered through BlockHiro, LLC.

 

Cost of Revenues

 

Our cost of revenues includes inventory costs, materials and supplies costs, internal labor costs and related benefits, subcontractor costs, depreciation, overhead and shipping and handling costs. In addition, we will incur costs to purchase Bitcoin mining equipment which will be resold to customers and costs from the development of Web3 products and services.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses consist of selling, marketing, advertising, payroll, administrative, finance and professional expenses.

 

Rental Income

 

We earn rental income from a month-to-month lease on a portion of the building located in Washington, New Jersey that we previously owned. The building was sold in August 2021.

 

Interest Expense, Net

 

Interest expense includes the cost of our borrowings under our debt arrangements.

 

Other Income

 

Other income includes the gain on disposal of the building located in Washington, New Jersey.

 

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Results of Operations

 

Nine Months Ended September 30, 2021 versus Nine Months Ended September 30, 2020

 

The following table sets forth information comparing the components of net income for the nine months ended September 30, 2021 and 2020:

 

Ferguson Containers, Inc.

 

   Nine Months Ended September 30,     Period over Period Change 
   2021   2020     $   % 
                   
Revenues, net  $ 5,767,328    $ 5,040,655     $ 726,673      14.42 %
Cost of revenues    4,119,953      3,525,122       594,831      16.87 %
Gross profit    1,647,375      1,515,533       131,842      8.70 %
                              
Operating expenses:                             
Selling, general and administrative    1,345,691      1,310,374       35,317      2.70 %
Operating (loss) income    301,684      205,159       96,525      47.05 %
                              
Other (expense) income:                             
Rental income    71,543      77,111       (5,568 )    -7.22 %
Interest (expense)    (47,327 )    (82,472 )     35,145      -42.61 %
Other income     475,419       -       475,419       100.00 %
Total other income (expense), net    499,635      (5,361 )     504,996      -9,419.81 %
Income before income taxes    801,319      199,798       601,521      301.06 %
Income tax expense    224,400      45,770       178,630      390.28 %
Net income    576,919      154,028       422,891      274.55 %

 

Revenue

 

For the nine months ended September 30, 2021, revenues increased by $726,673 or 14.42%, as compared to the nine months ended September 30, 2020. The increase was primarily the result of increased sales due to more demand for packaging materials related to increased shipment of goods by customers.

 

Cost of Revenues

 

For the nine months ended September 30, 2021, cost of revenues increased by $594,831 or 16.87%, as compared to the nine months ended September 30, 2020. The increase was primarily attributable to the increase in total revenues and increase in component costs due to supply constraints.

 

Gross Profit

 

For the nine months ended September 30, 2021, gross profit increased by $131,842, or 8.70%, as compared to the nine months ended September 30, 2020. The increase was primarily a result of the increase in revenues.

 

Operating Expenses

 

Selling, general and administrative expenses were $1,345,691 and $1,310,374 for the nine months ended September 30, 2021 and 2020, respectively, representing an increase of $35,317, or 2.70%. The increase was primarily the result of an increases in payroll and related benefits.

 

Rental Income

 

Rental income was $71,543 and $77,111 for the nine months ended September 30, 2021 and 2020, respectively.

 

Interest expense

 

Interest expense was $47,327 for the nine months ended September 30, 2021 versus $82,472 for the nine months ended September 30, 2020. The decrease in interest expense was related to the repayment of the line of credit in 2021.

 

Other income

 

Other income was $475,419 for the nine months ended September 30, 2021 versus $0 for the nine months ended September 30, 2020. The increase was related to the sale of the building in Washington, New Jersey in August 2021.

 

Income tax expense

 

Income tax expense was $224,400 and $45,770 for the nine months ended September 30, 2021 and 2020, respectively. The increase is related to taxes on the gain on the sale of the building in Washington, New Jersey.

 

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Year Ended December 31, 2020 versus Year Ended December 31, 2019

 

The following table sets forth information comparing the components of net (loss) income for the years ended December 31, 2020 and 2019:

 

Ferguson Containers, Inc.

 

   Years Ended December 31,   Period over Period Change 
   2020   2019   $   % 
                 
Revenues, net  $6,719,894   $5,833,477   $886,417    15.20%
Cost of revenues   4,691,451    4,210,633    480,818    11.42%
Gross profit   2,028,443    1,622,844    405,599    24.99%
                     
Operating expenses:                    
Selling, general and administrative   1,759,117    1,744,946    14,171    0.81%
Operating income (loss)   269,326    (122,102)   391,428    -320.57%
                     
Other (expense) income:                    
Rental income   102,815    102,815    -    0.00%
Interest (expense)   (112,295)   (77,847)   (34,448)   44.25%
Other income   -    3,054    (3,054)   -100.00%
Total other (loss) income, net   (9,480)   28,022    (37,502)   -133.83%
Income (loss) before income taxes   259,846    (94,080)   353,926    -376.20%
Income tax expense (benefit)   67,399    (53,660)   121,059    -225.60%
Net income (loss)   192,447    (40,420)   232,867    -576.12%

 

Revenue

 

For the year ended December 31, 2020, revenues increased by $886,417 or 15.20%, as compared to the year ended December 31, 2019. The increase was primarily the result of increased sales due to more demand for packaging materials related to increased shipment of goods by customers.

 

Cost of Revenues

 

For the year ended December 31, 2020, cost of revenues increased by $480,818 or 11.42%, as compared to the year ended December 31, 2019. The increase was primarily attributable to the increase in total revenues.

 

Gross Profit

 

For the year ended December 31, 2020, gross profit increased by $405,599, or 24.99%, as compared to the year ended December 31, 2019. The increase was primarily a result of the increase in revenues.

 

Operating Expenses

 

Selling, general and administrative expenses were $1,759,117 and $1,744,946 for the year ended December 31, 2020 and 2019, respectively, representing an increase of $14,171, or 0.81%. The increase was primarily the result of an increase in payroll and related benefits of $182,040 offset by a decrease in loss of disposals of $150,272.

 

Rental Income

 

Rental income was $102,815 for both the years ended December 31, 2020 and 2019, respectively.

 

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Interest expense

 

Interest expense was $112,295 for the year ended December 31, 2020, versus $77,847 for the year ended December 31, 2019. The increase in interest expense was related to increased borrowings due to increased revenues and factoring of receivables.

 

Income tax expense

 

Income tax expense (benefit) was a expense of $67,399 and a benefit of $53,660 for the year ended December 31, 2020 and 2019, respectively.

 

Liquidity and Capital Resources

 

Ferguson Containers, Inc. has historically been positive cash flows from operations. In addition, the Company has no significant debt obligations. Since inception, Ferguson Containers Inc.’s operations have been funded principally through its operations.

 

The Company expects to need approximately $10 million to execute its strategic plan, and additional funds to help speed the Company’s growth. As of the Distribution, the Company expects to have approximately $2 million in cash from BBIG. The Company expects that it will have to raise additional funds, this year and in the following few years, through public or private debt and equity financings to accomplish its strategic plan. The Company does not currently have any guaranteed financing or funding in place.

 

Cash Flows

 

Since inception, Ferguson Containers, Inc. has primarily used its available cash to fund its operations. The following table sets forth a summary of cash flows for the periods presented:

 

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Ferguson Containers, Inc.

 

   

For the Nine Months Ended

September 30,

   

For the Years Ended

December 31,

 
    2021     2020     2020     2019  
Cash (used in) provided by:                                
Operating Activities   $ 347,919     $ (21,788 )   $ 193,075     $ 122,057  
Investing Activities     775,263       (193,429 )     (276,478 )     (45,235 )
Financing Activities     (641,918 )     236,389       181,461       (983,832 )
Net increase (decrease) in cash and restricted cash   $ 481,264     $ 21,172     $ 98,058     $ (907,010 )

 

Cash Flows for the Nine Months Ended September 30, 2021, as Compared to the Nine Months Ended September 30, 2020

 

Ferguson Containers, Inc.

 

Operating Activities

 

Net cash provided by operating activities was $347,919 during the nine months ended September 30, 2021, which consisted primarily of net income of $576,919, non-cash depreciation expense of $98,435, an increase in changes in operating assets and liabilities of $147,984, offset by a gain on disposal of $475,419. Net cash used in operating activities was $21,788 during the nine months ended September 30, 2020, which consisted primarily of net income of $154,028, non-cash depreciation expense of $62,501, amortization of note discounts of $15,573, offset by a decrease in changes in operating assets and liabilities of $253,890.

 

Investing Activities

 

Net cash provided by investing activities was $775,263 during the nine months ended September 30, 2021 compared to net cash used in investing activities of $193,429 during the nine months ended September 30, 2020. This increase consisted primarily of the proceeds received on disposal from the sale of building in Washington, New Jersey.

 

Financing Activities

 

Net cash used in financing activities was $641,918 during the nine months ended September 30, 2021 compared to net cash provided by financing activities of $236,389 during the nine months ended September 30, 2020. This decrease primarily consisted of repayments under its line of credit in 2021 and changes in the due from Parent.

 

Cash Flows for the Years Ended December 31, 2020 and 2019

 

Operating Activities

 

Ferguson Containers, Inc.

 

Net cash provided by operating activities was $193,075 during the year ended December 31, 2020, which consisted primarily of net income of $192,447, non-cash depreciation expense of $95,861, amortization of note discounts of $15,573, and a decrease in changes in operating assets and liabilities of $110,806. Net cash provided by operating activities was $122,057 during the year ended December 31, 2019, which consisted primarily of a net loss of $40,420, offset by non-cash depreciation expense of $113,286, amortization of note discounts of $15,573, a increase in changes in operating assets and liabilities $33,618.

 

Investing Activities

 

Net cash used in investing activities increased to $276,478 during the year ended December 31, 2020 from $45,235 during the year ended December 31, 2019. This increase consisted solely of a increase in cash used for property and equipment purchases.

 

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Financing Activities

 

Ferguson Containers, Inc.

 

Net cash provided by financing activities was $181,461 during the year ended December 31, 2020 compared to net cash used in financing activities of $983,832 for the year ended December 31, 2019. This increase primarily consisted of changes in the due from Parent.

 

Contractual Obligations and Commitments

 

The Company has no debt covenants that require certain financial information to be met.

 

Off-Balance Sheet Arrangements

 

The Company did not have any off-balance sheet arrangements as of September 30, 2021.

 

Critical Accounting Policies and Significant Judgments and Estimates

 

This discussion and analysis of the Company’s financial condition and results of operations is based on the Company’s combined financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. In accordance with U.S. GAAP, the Company bases its estimates on historical experience and on various other assumptions the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

 

For information on the Company’s significant accounting policies please refer to Note 2 to the Company’s Financial Statements included in this information statement.

 

BUSINESS

 

We were formed in 2021 and expect to acquire the Web3 Business, Bitcoin Mining Services Business, and Packaging Business from our parent, BBIG, in anticipation of the Separation. The businesses we acquired have longer operating histories than us. Accordingly, our discussion of the businesses includes information related to their operations prior to our existence and acquisitions of them.

 

We are headquartered in Safety Harbor, Florida. Upon the Separation, we expect to trade under the ticker symbol “TYDE” on Nasdaq.

 

Web3 Business

 

BlockHiro, LLC was formed in November 2021 to do business as a Web3 company. BlockHiro had no activity through December 31, 2021. The Web3 Business plans to use decentralized blockchain technology in established consumer facing industries such as video games, music, and art. TYDE intends to finalize a digital coin minting platform in 2022. TYDE believes its digital coin minting platform will enable TYDE to, together with partners and clients, quickly and efficiently create digital coins for use with projects in established consumer facing industries.

 

Web3 is the tokenized web, which includes blockchains and the tokens on blockchains. Web3 is decentralized. On Web3, transaction are conducted peer-to-peer and can have high degrees of privacy. Blockchains can be used to create smart contracts, which take real world contacts and program onto a blockchain allowing for the automatic execution of contracts. Blockchains, under the umbrella of Web3, provide the platform for managing transactions using tokens that represent digital and physical assets, such as music, art, money, collectibles, and real estate. We believe our digital coin minting platform will allow us to create solutions for moving established consumer facing industries on to blockchains through use of smart contracts other blockchain applications.

 

Our Web3 Business includes our upcoming game Freescape. Freescape is a character driven virtual ecosystem comprised of themed interactive environments. Freescape will allow users the ability to explore and experience a wide range of activities in the Metaverse including concerts, movies, and more. The initial launch of Freescape will begin with the “Space Cowboys” character launch targeted for release in the first quarter of 2022. Freescape characters will be minted in-house by TYDE through its NFT platform on the Ethereum blockchain. End consumers will then store their NFTs in their personal wallets.

 

TYDE intends to grow the Web3 Business into a portfolio company with a portfolio of products that use decentralized blockchain technology in established consumer facing industries. TYDE is in the early stages of investigating Web3 uses in music, movies, digital art, ticketing and event services, and gaming.

 

The Web3 Business expects to take payment in the form of the digital currency Ethereum. TYDE will store the Ethereum it receives in a digital wallet. TYDE intends to adopt a policy for the conversion of Ethereum into fiat currency in accordance with industry standards.

 

The Web3 Business has not had any revenues. The Web3 Business does not currently have any material commitments for capital expenditures. In the event the Web3 Business requires a material capital expenditure, TYDE expects to fund it through capital raises.

 

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Bitcoin Mining Services Business

 

CW Machines, LLC was formed in 2021 to do business as a Bitcoin mining services company. The Bitcoin Mining Services Business, through a joint venture with Wattum Management Inc. and BBA Technology Inc., CW Machines LLC, is focused on bringing Bitcoin mining to the consumer level. TYDE holds a 51% interest in CW Machines, LLC.

 

CW Machines LLC is a reseller of Bitcoin mining equipment and services. The equipment sales primarily focus on Bitcoin mining equipment including Antminer S19s, Antminer S19 Pros, Whatsminer, and Canaan. Our Bitcoin mining services include reselling co-location services, which offer a physical location and ancillary services allowing Bitcoin miners to mine for Bitcoin. These services are provided by third-parties.

 

The Bitcoin Mining Services Business was formed in the fourth quarter of 2021 and began receiving revenue prior to December 31, 2021. The Bitcoin Mining Services Business does not currently have any material commitments for capital expenditures. In the event the Bitcoin Mining Services Business requires a material capital expenditure, TYDE expects to fund it through capital raises.

 

Packaging Business

 

The Packaging Business, through Ferguson Containers, Inc., manufactures and sells custom packaging for a wide variety of products. In our experience, packaging has the capability to “tell” the products story, generating increased product awareness, promote brand image, and drive unit growth. Senior management has more than 100 years of combined experience marketing, producing and delivering packaging materials. A hallmark of our operation is our quick production cycle. We can often begin a production run within minutes of receipt of an order. Many of our products are manufactured from 100% post-consumer recycled material. When production is complete, we typically ship the product using our own trucks rather than relying on a common carrier. Ferguson Containers, Inc. does not have long-term agreements with its customers, and instead manufactures and sells its packaging products subject to purchase orders from its customers.

 

In the fiscal year ended December 31, 2020, the Packaging Business had revenue of $6,719,894. In the nine months ended September 30, 2021, the Packaging Business had revenue of $5,767,328.

 

Business Strategy

 

Derive revenue from a diverse group of industries and sources to allow us to focus resources towards the best opportunities. We intend for the Spin-Off Businesses to derive revenue from established industries such as consumer packaging, as well as newly emerging markets such as Web3, Bitcoin mining equipment and services, and creating NFTs. Our revenue is expected to come from a wide variety of sources. Our consumer packaging and Bitcoin Mining Services Business earn revenue from the sale of goods and related services. Products under our Web3 Businesses are expected to generate revenue from several sources including fees for using services developed by us, in-game sales for games we create, advertising integrated into the products expected to be offered by the Web3 Business, and transaction fees for various services.

 

Continually assess our businesses to best allocate resources. We expect our diverse group of industries and sources of revenue will allow our management to evaluate how to best allocate resources, and ultimately grow the Company. Because the industries that we expect to participate in include traditional and recently formed industries, our management believes we will be well prepared for changing economic conditions and customer preferences.

 

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Expand through a combination of organic growth and strategic acquisition. We believe the Packaging Business and Bitcoin Mining Services Business are positioned well to grow organically. The Packaging Business has been operating for over 50 years and has a track record of expanding. The Bitcoin Mining Services Business is tapping into a relatively new market of less-established Bitcoin miners who traditionally could not enter the space due to economic and logistical hurdles. Our management may seek strategic acquisitions for Packaging Business and Bitcoin Mining Services Business, but believes these two businesses can be grown organically through continued sales efforts. The Web3 Business is expected to grow both organically, and through strategic acquisitions. Our management believes that our future ability to quickly and efficiently mint digital tokens will allow us to make acquisitions and quickly add value by integrating blockchain into the existing consumer facing industries.

 

Maintain dedicated customer focus. We believe that maintaining a close partnership with our customers will allow us to effectively focus our efforts and respond to their changing demands. Our customers will expect us to offer products and services that remain relevant in industries that are constantly evolving. Our management believes listening to our customers will allow us to adapt to their needs and preferences.

 

Employees

 

As of January 24, 2022, the companies that will comprise TYDE had 24 employees that perform various administrative, finance and accounting, technology, and corporate management functions. Of the 24 employees, 17 employees were employed by Ferguson Containers, Inc. and 7 employees were employed by Cryptyde Shared Services, LLC. None of our employees are represented by a union in collective bargaining with us. We consider relations with our employees to be good.

 

Properties, Facilities, and Distribution

 

We currently lease office space located in Safety Harbor, FL pursuant a lease that expires on July 31, 2024. In addition, we lease office space in Alpha, NJ on a month-to-month basis.

 

Legal Proceedings

 

During the normal course of its business, the Company may be subject to occasional legal proceedings and claims. There are currently no legal proceedings or claims asserted against the Company or its subsidiaries.

 

Supply Chain and Production

 

Our Packaging Business does not have long-term contractual arrangements with any of our suppliers that guarantee us production capacity, prices, lead times, or delivery schedules. Our reliance on independent party suppliers exposes us to vulnerability because of our dependence on a few sources of supply. We believe, however, that other sources of supply are available. In addition, we continually strive to develop relationships with other sources of supply in order to reduce our dependence on any one source of supply. As a result, we believe that our current and other available suppliers will ensure that we obtain a sufficient supply of goods built to our specifications in a timely manner and on satisfactory economic terms.

 

Our Bitcoin Mining Services Business is reliant on third-party suppliers. We are a reseller and require the availability of the products we purchase at wholesale, then distribute to final customers. We do not have long-term contractual arrangements with any of our suppliers that guarantee us adequate supply of Bitcoin mining equipment to satisfy the needs of our Bitcoin Mining Services Business.

 

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Patents, Trademarks, and Copyrights

 

We recognize the importance of innovation and protecting our intellectual property. We will apply for patents whenever we develop innovative new products, unique designs, or processes of commercial importance and seek trademark protection when we believe they provide a marketing advantage. We do not believe that our business is materially dependent on any single patent or trademark.

 

We rely on a combination of trade secrets, trademarks, trade dress, customer records, monitoring, brand protection services, confidentiality agreements, and other contractual provisions to protect our intellectual property.

 

We intend to vigorously pursue and challenge infringements of our patents, trademarks, service marks, trade dress, and copyrights, as we believe the goodwill associated with them is a cornerstone of our branding strategy.

 

Information Systems

 

Our information systems use software enterprise resource platforms, including procurement, inventory management, receivables management, and accounting. We utilize QuickBooks Enterprise as our ERP system, which is administered by BBIG through the Shared Services Agreement noted above.

 

After the Separation, we will either convert to our own instance of QuickBooks Enterprise or we will implement a new ERP system. Regardless of which decision is made, we believe our information systems infrastructure will support our growth strategy in the future.

 

Competition

 

We operate and plan to operate in a competitive markets and encounter competition from both domestic and foreign participants. We believe we can effectively compete with our present competitors. We compete, and plan to compete, primarily based upon innovation, performance, price, quality, reliability, durability, consumer brand awareness, and customer service and support. Our competitors include a large number of private companies that directly compete with a number of our brands. Certain of our competitors may have more established brand names and stronger distribution channels than we do and have, or have through their owners, access to financial and marketing resources that are greater than we possess that may afford them the ability to invest more than we can in product development, intellectual property, and marketing.

 

Competitors to our Packaging Business include Sutherland Packaging, based in Andover NJ, Acme Corrugated Box Company, based in Hatboro PA, and Trenton Corrugated Products, Inc., based in Ewing PA. Competitors for our Bitcoin Mining Services Business include Compass Mining, Miners Dep, and Alliance Miners. Our competitors in the Web3 business will depend on what Web3 products we develop or acquire. We expect competition for Freespace to include Decentraland, Sandbox, and Fluf World.

 

Seasonality

 

Our business is not seasonal and there are not large fluctuations with our operations between quarterly revenues based on the time of year.

 

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Government Regulation

 

Packaging Business

 

Like other manufacturers and distributors of consumer products, we are required to comply with a wide variety of federal, state, and international laws, rules, and regulations, including those related to consumer products and consumer protection, advertising and marketing, labor and employment, data protection and privacy, intellectual property, workplace health and safety, the environment, the import and export of products, and tax matters. Our failure to comply with applicable federal, state, and international laws, rules, and regulations may result in our being subject to claims, lawsuits, fines, and adverse publicity that could have a material adverse effect on our business, operating results, and financial condition. These laws, rules, and regulations currently impose significant compliance requirements on our business, and more restrictive laws rules, and regulations may be adopted in the future.

 

Web3 Business and Bitcoin Mining Services Business

 

The laws and regulations applicable to digital assets, including those we intend to produce under our Web3 Business and the Bitcoins mined by our Bitcoin Mining Services Business customers, are evolving and subject to interpretation and change. Governments around the world have reacted differently to digital assets; certain governments have deemed them illegal, and others have allowed their use and trade without restriction, while in some jurisdictions, such as in the U.S., digital assets are subject to extensive, and in some cases overlapping, unclear and evolving regulatory requirements. As digital assets have grown in both popularity and market size, the U.S. Congress and a number of U.S. federal and state agencies, including FinCEN, the CFTC, the SEC, FINRA, the CFPB, the Department of Justice, the Department of Homeland Security, the Federal Bureau of Investigation, the IRS and state financial regulators, have been examining the operations of digital assets networks, digital assets users and digital assets exchange markets. Ongoing and future regulatory actions may alter, perhaps to a materially adverse extent, the nature of digital assets markets and our digital assets operations. Additionally, U.S. state and federal and foreign regulators and legislatures have taken responsive action against digital assets businesses or enacted restrictive regimes in response to hacks, consumer harm, or criminal activity stemming from digital assets activity. There is also increasing attention being paid by U.S. federal, state, and local energy regulatory authorities as the total electricity consumption of cryptocurrency-mining grows and potentially alters the supply and dispatch functionality of the wholesale grid and retail distribution systems. Many state legislative bodies are also actively reviewing the impact of cryptocurrency-mining in their respective states.

 

Due to the relatively short history of Bitcoin and digital assets, and their emergence as a new asset class, government regulation of blockchain and digital assets is constantly evolving, with increased interest expressed by U.S. and international regulators.

 

Government regulation of blockchains and digital assets is under active consideration by the United States federal government via its agencies and regulatory bodies, as well as by similar entities in other countries and transnational organizations. State and local regulations also may impact our activities and other activities in which we may participate in the future. Other governmental regulatory bodies have shown an interest in regulating or investigating companies engaged in blockchain or digital asset businesses.

 

The effect of any regulatory change, either by the federal, state, local or foreign governments or any self-regulatory agencies on us is impossible to predict, but such change could be substantial and may have a material adverse effect on our business, financial condition, and results of operations. While we are unaware of significant adverse governmental or regulatory action adverse to Bitcoin mining in the United States, there is no guarantee that future regulation or adverse action will not take place and interpretation of existing regulations in a manner adverse to our business is possible.

 

In addition, various foreign jurisdictions either have adopted, or may adopt, laws, regulations or directives that affect digital assets, digital asset networks, and their users and participants. Such laws, regulations or directives may conflict with those of the United States, may negatively impact the acceptance of digital assets by users, merchants, and service providers outside of the United States, and may therefore impede the growth of digital assets. Several Eastern European and Asian countries have a more restrictive posture toward digital assets and, thereby, have reduced the rate of expansion of digital asset use, as well as mining, in each of those countries. Presently, we do not believe any U.S. federal or state regulatory body has taken any action or position adverse to Bitcoin, with respect to its production, sale, and use as a medium of exchange; however, future changes to existing regulations or entirely new regulations may affect our business in ways it is not presently possible for us to predict with any reasonable degree of reliability.

 

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We are unable to predict the effect that any future regulatory change, or any overlapping or unclear regulations, may have on us, but such change, overlap or lack of clarity could be substantial and make it difficult for us to operate our business or materially impact the market for digital assets that we mine or may mine in the future. FinCEN has issued guidance stating its position that it does not differentiate between fiat currency (which FinCEN calls “real currency”) and digital assets that are convertible into fiat currency or other forms of convertible virtual currencies (which FinCEN calls “virtual currency”) for purposes of determining whether a person or entity is engaging in “money transmission services”. Persons and entities engaging in virtual currency activities that amount to “money transmission services,” or otherwise cause them to be deemed a “money services business” under FinCEN’s regulations, must register with FinCEN as a money services business, implement an “effective” anti-money laundering program and comply with FinCEN’s reporting and recordkeeping requirements.

 

In May 2019, FinCEN issued guidance relating to how the Bank Secrecy Act (“BSA”) and its implementing regulations relating to money services businesses apply to certain businesses that transact in convertible virtual currencies. Although the guidance generally indicates that certain mining and mining pool operations will not be treated as money transmission services, the guidance also addresses when certain activities, including certain services offered in connection with operating mining pools such as hosting convertible virtual currency wallets on behalf of pool members or purchasers of computer mining power, may be subject to regulation. Although we believe that our activities under the Web3 Business and the Bitcoin Mining Services Business do not presently trigger FinCEN registration requirements under the BSA, if our activities cause us to be deemed a “money transmitter,” “money services business” or equivalent designation, under federal law, we may be required to cease certain of our operations. Ceasing such operating could have a material adverse effect on our financial position, results of operations and cash flows.

 

Backlog

 

We currently do not have a material backlog of orders through our Packaging Business. Backlog consists of orders for which purchase orders have been received and which are generally scheduled for shipment within six months or subject to capacity constraints, including lack of available product. We allow orders received that have not yet shipped to be cancelled; therefore, our backlog may not be indicative of future sales.

 

Emerging Growth Company

 

As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 the (“JOBS Act”). We will continue to be an emerging growth company until the earliest to occur of the following:

 

  the last day of the fiscal year following the fifth anniversary of the Distribution;
     
  the last day of the fiscal year with at least $1.07 billion in annual revenue;
     
  the last day of the fiscal year in which we are deemed to be a large accelerated filer, which means that we have been public for at least 12 months, have filed at least one annual report, and the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last day of our then-most recently completed second fiscal quarter; or
     
 

the date on which we have issued more than $1 billion of non-convertible debt during the prior three-year period.

 

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Until we cease to be an emerging growth company, we plan to take advantage of reduced reporting requirements generally unavailable to other public companies. Those provisions allow us to do the following:

 

  provide reduced disclosure regarding our executive compensation arrangements pursuant to the rules applicable to smaller reporting companies, which means we do not have to include a compensation discussion and analysis and certain other disclosures regarding our executive compensation;
     
  not provide an auditor attestation of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley”); and
     
 

not hold a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

We have elected to adopt the reduced disclosure requirements described above for purposes of this information statement. In addition, for so long as we qualify as an emerging growth company, we expect to take advantage of certain of the reduced reporting and other requirements of the JOBS Act with respect to the periodic reports we will file with the SEC and proxy statements that we use to solicit proxies from our stockholders. As a result of these elections, the information that we provide in this information statement may be different than the information you may receive from other public companies in which you hold equity interests. In addition, it is possible that some investors will find our common stock less attractive as a result of these elections, which may result in a less active trading market for our common stock and higher volatility in our stock price.

 

In addition, the JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to take advantage of the extended transition period that allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

 

MANAGEMENT

 

Executive Officers Following the Separation

 

The following table sets forth information, as of the date of this information statement, regarding certain individuals who are expected to serve as our directors and executive officers following the Separation. We expect that those individuals noted below, who are current employees of BBIG, except for Brian McFadden who resigned from his positions with BBIG effective as of September 23, 2021, will transfer from their respective employment with BBIG to our Company and, immediately prior to the Separation, resign from any officer roles with BBIG.

 

The Company’s anticipated directors and executive officers as of [●], 2022, are as follows:

 

Name   Age   Position
Brian McFadden   36   President and Chief Executive Officer, Director
Brett Vroman   41   Chief Financial Officer
Timothy Cabrera   50   Chief Operating Officer
Kevin O’Donnell   45   Chairman (Officer)
Frank Jennings   49   Director
Louis Foreman   52   Director
Mary Ann Halford   56   Director

 

Brian McFadden. Mr. McFadden has served as a member of the Board since October 13, 2021. Mr. McFadden also serves as President and Chief Executive Officer of the Company. Mr. McFadden previously served as the Chief Strategy Officer for Vinco Ventures, Inc. A serial entrepreneur himself, Mr. McFadden is charged with identifying and targeting company acquisitions to ensure long term growth and scale. Mr. McFadden served as a Managing Member of MAC Capital Holdings, a marketing and consulting firm, from 2019 to 2020, and as President and Chief Executive Officer of Stealth Technologies Inc, a direct response distribution company, from 2012 to 2019. Mr. McFadden brings with him a wealth of knowledge in the media acquisitions, and consumer products markets. Mr. McFadden recently was involved in the acquisition and merger of a large social platform in the short form content space. A Hamilton College graduate, Mr. McFadden supports entrepreneurs in their early-stage growth efforts.

 

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Brett Vroman Mr. Vroman has served as Chief Financial Officer since October 13, 2021. Mr. Vroman served as Vinco Venture, Inc.’s Chief Financial Officer from June 2019 to November 22, 2021, and previously served as its Controller from May 2018 through May 2019. From October 2014 to May 2018, Mr. Vroman was Director of Financial Reporting at Avantor, Inc., a global manufacturer and distributor of high-quality products, services and solutions to customers and suppliers in the life science, advanced technology, and applied materials industries. From March 2011 to October 2014, Mr. Vroman was employed as an Assurance Senior Manager at BDO USA, LLP, a public accounting, tax, consulting. Mr. Vroman is a certified public accountant and holds a Bachelor of Science in Accounting from York College of Pennsylvania. Mr. Vroman bring to Tyde accounting and management experience.

 

Timothy Cabrera. Mr. Cabrera is anticipated to serve as our Chief Operating Officer following the Separation. From 2018 to 2021, Mr. Cabrera served as the President of Graphene Holdings, a business development consulting business. Prior to his time at Graphene Holdings, Mr. Cabrera served as the Chief Executive officer of JMS Holdings. Mr. Cabrera has overseen the launch of several products in the safety and security space, co-founded a real estate investment company, and worked as a consultant focused on core business strategies, business process designs and e-commerce designs. He earned an MBA in Entrepreneurship from Wayne Huizenga School of Business at NOVA Southeastern University where he served a two-term chairmanship of the Strategic Forum Student Group and a bachelor’s degree from Florida State University in Finance & International Business. Mr. Cabrera brings close to 20 years of management experience to the Company.

 

Kevin O’Donnell. Mr. O’Donnell has served as the Chairman of the Board of Directors since October 13, 2021. Mr. O’Donnell founded Poptop Partners, LLC, a boutique operating and investment firm specializing in small to mid-market companies with an emphasis on the retail sector in April 2011 and continues to serve as its Managing Partner. From May 2007 to June 2010, Mr. O’Donnell served as the Founder/President of KOR Capital, LLC, a private equity and consulting firm specializing in turn around management of mid-market companies. Mr. O’Donnell has been an early-stage investor in multiple industries including hospitality, beverage, cannabis, hemp and technology. Mr. O’Donnell has served or continues to serve on numerous private and public boards including but not limited to SRM Entertainment, Vinco Ventures, Inc., Lakeside Alternatives Hospital Foundation, and The University Club. Mr. O’Donnell brings to TYDE close to 25 years of strategic corporate growth, financial structuring, leadership, and business development initiatives to emerging growth companies.

 

Frank Jennings. Mr. Jennings has served as a member of the Board since October 13, 2021. Since 2019, Mr. Jennings has served as the Chief Sales Officer at Castlight Health. From August 2014 to 2019, Mr. Jennings was employed as the Vice President of Sales, North America by Doctor on Demand, Inc., an innovative healthcare telemedicine provider. He currently serves as an advisor at Aptihealth and Covera Health and is on the Board of Directors for Vinco Ventures, Inc. Mr. Jennings is a co-founder of the CMK Foundation, a charitable organization which has been helping people in local communities since 2009. Mr. Jennings brings to TYDE 30 years of experience in business development and management of sales professionals in a variety of technology-adjacent industries.

 

Mary Ann Halford. Ms. Halford has served as a member of the Board since October 13, 2021. She is currently a Partner in the Telecommunications, Media, and Technology (“TMT”) strategy consultancy Altman Solon. Previously she was a Senior Advisor to OC&C Strategy Consultants from December 2017 to December 2020. From March 2012 to April 2017, Ms. Halford was both a Managing Director and then a Senior Managing Director in FTI Consulting’s TMT Group working both in NY and London. Ms. Halford built out the digital operations for ITN Networks from 2008 – 2009 and from 1997 through 2002, Ms. Halford built and developed the platform for the Fox International Channels Group. In addition, from 2007 through 2014, Ms. Halford served on the Board of Directors of Triton Digital. Ms. Halford received her Bachelor of Arts degree in Government and Economics from Georgetown University and her Master’s in Business Administration from Harvard University. Ms. Halford brings to TYDE over 30 years of experience as both an operator and consultant to the global media and entertainment industry.

 

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Louis Foreman. Louis Foreman is the founder and Chief Executive of Enventys, an integrated product design and engineering firm. Over the past 34 years Louis has created 10 successful start-ups and has been directly responsible for the creation of over 20 others. In 2013, Mr. Foreman was appointed by the SBA Administrator to serve on the National SBDC Advisory Board until the end of 2022. In 2008, Mr. Foreman was appointed by United States Secretary of Commerce Carlos M. Gutierrez to serve for a three-year term on the nine-person Patent Public Advisory Committee (PPAC) of the United States Patent and Trademark Office. In 2011, he was appointed by Secretary Gary Locke to serve an additional three-year term. In addition to being an inventor, Mr. Foreman was the creator of the Emmy® Award winning PBS TV show, Everyday Edisons, and served as the Executive Producer and lead judge. Mr. Foreman currently serves as Chairman of the Board of Directors of the James Dyson Foundation, the Intellectual Property Owners Association (IPO), New Dominion Bank, The Federal Reserve Bank Industry Roundtable, Beyond Campus Innovations, Vinco Ventures, Inc., and the Intellectual Property Owners Educational Foundation (IPOEF). Mr. Foreman has a Bachelor of Arts degree in Economics from the University of Illinois. Mr. Foreman brings to TYDE significant experience with start-ups and knowledge of intellectual property matters.

 

Corporate Governance

 

Director Nominations Process

 

Each year the Board is expected nominate a slate of directors for election by stockholders at the annual meeting of stockholders based on the recommendations of the Nominating and Corporate Governance Committee. In identifying prospective director candidates, the Nominating and Corporate Governance Committee may seek referrals from other members of the Board, management, stockholders and other sources, including third-party recommendations.

 

Director and Executive Officer Qualifications

 

Under our Corporate Governance Guidelines, which we intend to adopt prior to the Distribution, our Nominating and Corporate Governance Committee is expected to be responsible for reviewing with our Board, on an annual basis, the appropriate experience, skills and characteristics for the Board as a whole and its individual members. In evaluating the suitability of individuals for Board membership, our Nominating and Corporate Governance Committee, pursuant to our Corporate Governance Guidelines, is expected to take into account many factors, including but not limited to: the individual’s general understanding of the various disciplines relevant to the success of a publicly-traded company in today’s business environment; the individual’s understanding of the Company’s businesses and markets; the individual’s professional expertise and educational background; and other factors that promote diversity of views and experience. Our Nominating and Corporate Governance Committee is expected to evaluate each individual in the context of the Board as a whole, with the objective of recommending a group of directors that can best perpetuate the success of the business and represent stockholder interests through the exercise of sound judgment, using its diversity of experience. In determining whether to recommend a director for re-election, our Nominating and Corporate Governance Committee is also expected to consider the director’s past attendance at meetings and participation in and contributions to the activities of the Board.

 

The Company’s officers and Board of Directors is composed of a diverse group of leaders in their respective fields. Many of these officers or directors have senior leadership experience at various companies. In these positions, they have also gained experience in core management skills, such as strategic and financial planning, public company financial reporting, compliance, risk management, and leadership development. Many of the Company’s officers and directors also have experience serving on boards of directors and/or board committees of other public companies and private companies and have an understanding of corporate governance practices and trends, which provides an understanding of different business processes, challenges, and strategies. Further, these officers and directors have other experience that makes them valuable, such as managing and investing assets or facilitating the consummation of business investments and combinations.

 

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The Company, along with its officers and directors, believe that the above-mentioned attributes, along with the leadership skills and other experiences of the Company’s directors and executive officers described above, provide the Company with a diverse range of perspectives and judgment necessary to facilitate the Company’s goals of shareholder value appreciation through organic and acquisition growth.

 

Board Structure, Number and Terms of Office of Officers and Directors

 

Our Board of Directors will consist of five Directors. In accordance with our Restated Certificate of Incorporation, which we expect to adopt prior to the Distribution, the minimum number of directors we may have is five and maximum number of Directors is eleven. The number of Directors may be increased or decreased by our Board of Directors from time to time. In accordance with our Restated Bylaws, which we plan to adopt prior to the Distribution, and Delaware law, our Board of Directors will oversee the management of the business and affairs of the Company. Our Directors will be elected by our stockholders at our annual stockholders meeting for three-year terms and to serve until their successors are duly elected and qualified or until their earlier death, resignation, or removal. Stockholders will not be entitled to cumulative voting in the election of our directors. Our Board of Directors will be classified, meaning the directors will be divided into three classes each consisting of as close to 1/3 of the total Directors as possible. At each annual meeting of the shareholders, one class of Directors will be up for election. Directors will serve three-year terms. No determination has been made regarding the directors to be in the individual classes. This classification of the Board of Directors may delay or prevent a change in control of our company or our management.

 

Director Independence

 

Nasdaq listing standards require that a majority of the Company’s Board of Directors be independent. An “independent director” is defined generally as a person other than an officer or employee of the Company or its subsidiaries or any other individual having a relationship that, in the opinion of the Company’s Board of Directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. The Board intends to affirmatively determine that Frank Jennings, Louis Foreman, and Mary Ann Halford qualify as independent directors in accordance with the Nasdaq listing rules.

 

Board Leadership Structure

 

Our Board of Directors is not expected to have a formal policy regarding the combination of the roles of Chairman of the Board and Chief Executive Officer because the Board of Directors believes that it is in the best interests of the Company to have the flexibility to determine, from time to time, whether the positions should be held by the same person or by separate persons. The Board of Directors believes that it is currently in the best interest of our stockholders that the role of Chairman be held by Kevin O’Donnell.

 

The Board of Directors may reconsider this leadership structure from time to time based on the leadership needs of our Board of Directors and the Company at any particular time. The Nominating and Corporate Governance Committee is expected to evaluate on an ongoing basis whether the Board’s leadership structure is appropriate to effectively address the evolving needs of the Company’s business and the long-term interests of our stockholders. The committee is expected to then makes recommendations to the Board of Directors concerning the Board of Directors’ leadership structure, including whether the roles of Chairman and Chief Executive Officer should be separated or combined.

 

Lead Independent Director

 

Under our Corporate Governance Guidelines, which we intend to adopt prior to the Distribution, if the Chairman of the Board of Directors is not an independent director, as determined by the Nominating and Governance Committee and the Board, the independent directors will annually appoint one independent director to be the Lead Independent Director in accordance with the Director Nominating Agreement. Given that our Chairman will not be an independent director, our independent directors have appointed Frank Jennings as our Lead Independent Director. The Lead Independent Director’s responsibilities are to: (i) preside over executive sessions of the independent directors and at all meetings at which the Chairman of the Board of Directors is not present; (ii) call meetings of the independent directors as he or she deems necessary; (iii) serve as a liaison between the Chairman of the Board of Directors and the independent directors; (iv) propose agendas and schedules for Board meetings in consultation with the Chairman of the Board of Directors; and (v) be available for consultation and communication if requested by stockholders.

 

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Board’s Role in Risk Oversight

 

Our management is responsible for identifying risks facing our Company, including strategic, financial, operational, and regulatory risks, implementing risk management policies and procedures and managing our day-to-day risk exposure. The Board is expected to have overall responsibility for risk oversight, including, as part of regular Board of Directors and committee meetings, general oversight of executives’ management of risks relevant to the Company. While the full Board of Directors has overall responsibility for risk oversight and is currently overseeing the Company’s business continuity risks, it is expected to be supported in this function by its Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee once the committees have been formed. The committees are expected to be formed prior to the Distribution, and each of the committees is expected to regularly reports to the Board of Directors.

 

The Audit Committee will review and discuss with management and the Company’s auditors, as appropriate, the risks faced by the Company and the policies, guidelines, and process by which management assesses and manages the Company’s risks, including the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures.

 

The Compensation Committee will review the Company’s incentive compensation arrangements to determine whether they encourage excessive risk-taking, to review and discuss at least annually the relationship between risk management policies and practices and compensation, and to evaluate compensation policies and practices that could mitigate any such risk.

 

The Nominating and Corporate Governance Committee will be responsible for developing and recommending to the Board of Directors for approval an officer succession plan (the “Succession Plan”), reviewing the Succession Plan periodically with the Chief Executive Officer, evaluating potential candidates for executive positions and recommending to the Board of Directors any changes to and any candidates for succession under the Succession Plan.

 

In addition, the Board of Directors will be presented with information at its regularly scheduled and special meetings regarding risks facing our Company, and management will provide more frequent, informal communications to the Board of Directors between regularly scheduled meetings which will be designed to give the Board of Directors regular updates about our business. The Board of Directors will consider this information and will provide feedback, will make recommendations, and, as appropriate, will authorize or direct management to address particular exposures to risk.

 

Committees of the Board of Directors

 

Our Board of Directors is expected to have three standing committees: Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. Frank Jennings, Mary Ann Halford and Louis Foreman, are expected to be appointed to serve on the Company’s Audit Committee, with Louis Foreman serving as the chair and qualifying as an audit committee financial expert, as such term is defined in Item 407(d)(5) of Regulation S-K. Frank Jennings, Mary Ann Halford, Louis Foreman are expected to be appointed to serve on the Company’s Compensation Committee, with Frank Jennings serving as the chair. Frank Jennings, Mary Ann Halford, Louis Foreman are expected to be appointed to serve on the Company’s Nominating and Corporate Governance Committee, with Frank Jennings serving as the chair. Each of the committee charters will be available on the Company’s website at www.cryptyde.com prior to the Distribution.

 

Audit Committee

 

The Audit Committee’s duties, which will be specified in its charter that TYDE plans to adopt prior to the Distribution, will include, but will not be limited to:

 

  reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending to the Board of Directors whether the audited financial statements should be included in our annual reports;

 

  discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements;

 

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  discussing with management major risk assessment and risk management policies;

 

  monitoring the independence of the independent auditor;
     
  verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law;

 

  reviewing and approving all related-party transactions;

 

  inquiring and discussing with management our compliance with applicable laws and regulations;

 

  pre-approving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed;